HEDGE ACCOUNTING (Part 1)

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19版《会计学原理》会计英语双语词汇怀尔德

Accounting terms会计术语Accounting; account; accountant; CPA, CMA, CIA, CB, CFE; financial accounting; managerial accounting; auditor; internal control; financial management; bookkeeping recordkeeping;会计;账户;会计师;注册会计师,注册管理会计师,注册内部审计师,注册簿记员,注册舞弊检查员;财务会计,管理会计,审计员,内部控制;财务管理;记账；记录;R&D, Research & Development; HR Human Resource; distribution; logistics; marketing; Not-for-profit organization; shareholder; stakeholder; lender; creditor; debtors; supplier; customer; regulator; legislator; board of director; broker; mortgage; wholesaler, retailer; merchandiser; manufacturer; services; consignor; consignee; Entrepreneur, entrepreneurship; sole proprietorship; partnership; corporation; common stock or ordinary share; preferred stock or preference share; corporate governance system; limited company; SOE：state-owned enterprise; SME：small and medium sized enterprise;研发、研发、人力资源;分配；物流;销售;非营利组织;股东;利益相关者;出借人;债权人,债务人;供应商;客户;监管;立法;董事会;代理;抵押贷款;批发商、零售商,推销商,制造商,服务,发货人,收货人,企业家,企业家能力;个人独资,合伙企业;企业;普通股或普通股,优先股或优先股;公司治理系统;有限公司；国有企业,中小企业,Financial statement; financial report; footnotes to financial statement; interim financial statement; annual, semiannually, quarterly, monthly financial statement; balance sheet; income statement; cash flow statement; statement of owner’s equity; cla ssified financial statement; pro forma financial statements; unadjusted trial balance; adjusted trial balance; post-closing trial balance; book; journal; ledger; general journal; specific journal; general ledger; subsidiary ledger; chart of accounts; double-entry accounting; working papers; work sheet;财务报表、财务报告、财务报表附注;中期财务报表,年度,每半年、季度、月度财务报表,资产负债表,损益表,现金流量表,所有者权益表;财务报表分类;形式上的财务报表;调整前试算表,调整后试算表,结帐后试算表;账簿;日记账;分类账;一般日记账;特定日记账,总账、明细分类帐;会计科目表;复式会计;工作底稿;工作表;Accounting ethics; accounting fraud, scandal; bogus accounting report; accounting oversight; stringent internal control; accounting principle, assumption, and standard; social responsibility; FASB, GAAP, SEC, IASB, IFRS; general principle, specific principles; cash basis accounting; accrual basis accounting; cost principle; revenue reorganization principle; matching principle; materiality constraint (cost-to-benefit constraint); full disclosure principle; going-concern assumption; monetary unit assumption; time period assumption (periodicity assumption) ; business entity assumption; consistency concept; conservatism constraint; lower of cost or market; LIFO conformity rule;会计道德;会计欺诈，丑闻,虚假的会计报告;会计监督;严格的内部控制,会计原则,假设,和标准;社会责任;财务会计准则委员会,公认会计准则,证券交易委员会,国际会计准则委员会,国际财务报告准则;一般原则,具体原则;收付实现制;权责发生制会计;成本原则;收入确认原则,配比原则;物质性约束(效益成本约束);全面披露原则,持续经营假设;货币计量假设;会计分期假设(周期性假设);会计主体假设;一致性概念;保守主义约束;降低成本或市场;后进先出一致性规则;Accounting cycle; operating cycle; accounting documents; source documents; sales tickets; checks; purchase orders; bills; invoice; cash register; money and any medium of exchange; deposit; money orders; promissory note; written promise; Asset; tangible asset; intangible asset; liability; owner’s equity; revenue; expense; profit; current asset; non-current asset; fixed asset; plant and equipment; cash discount; cost of goods sold; credit memorandum; credit period; credit terms; debit memorandum; discount period; EOM (end of month); FOBshipping point; FOB destination; general and administrative expenses; gross margin; inventory; list price; multiple-step income statement; periodic inventory system; perpetual inventory system; purchase return and allowance; shrinkage; supplementary records; trade discount; damage and loss in transit; transportation-in，transportation-out; itemized cost; physical count; deterioration;会计循环;营业周期;会计凭证;原始凭证;销售票据,检查,采购订单,账单;发票;收银台;金钱和任何交换的媒介,存款,汇票,本票,书面承诺;资产,有形资产,无形资产,负债,所有者权益,收入,费用,利润,流动资产、非流动资产、固定资产、厂房和设备,现金折扣,销货成本;信用证;信贷时期,信贷条件;借项通知单;折扣期间，月末;寄发地交货,目的地交货;一般及行政费用,毛利;存货;定价;多级损益表;定期盘存制;永续盘存制;回购和津贴;损失;补充记录;商业折扣,伤亡和损失在运输过程中,运入运费，运出运费;会计成本;实物盘点;衰退;T-account; contra account; permanent accounts; temporary accounts; transaction and event; what-if or proposed transaction; liquidation; net income or loss; Income Summary; sale on credit, sale on account; receivables; payables; capital; supplies; notes payable; accumulated depreciation; straight-line depreciation; reduced balance depreciation; withdrawal; deferral; accruals; deferred expenses or revenues; accrued expenses or revenues; working capital; beginning balance; ending balance, end-of-period balance; normal balance; opposite normal balance; short-term, long-term; point of time, period of time; prior period; fiscal year, 12 consecutive months or 52 weeks; calendar year; natural business year; closing entries; prepaid account; premium; journal entry; year-end adjusting entry; posting reference column; unearned revenue;丁字式帐户;抵销帐户;永久账户;临时账户,交易和事件,提出假设或事务;清算;净利润或损失;收益汇总;赊销,赊销;应收,应付款;资本;物料;应付票据,累计折旧;直线折旧,余额递减折旧;撤资;延迟;权责发生额;递延费用或收入;应计费用或收入,营运资本,期初余额,期末余额,期末余额;正常平衡;相反的正常平衡,短期、长期,时点,时期,前期;财政年度,连续12个月或52周,历年;自然年;结帐分录;预付帐户;溢价;日记账分录,年终调整分录;过账备查账,预收收入;business decision; lending decision; investment; return; financing; cost of capital; dividend; bonus; principal amount; interest rate; book value; historical value; residual value; salvage value; amount; Pro rata basis; gift card; gift certificate; coupon; premium; salary; wage; pension; welfare; interest; vacation, vocation; carton, cartoon; patent; trademarks; copyrights; franchise; goodwill; licensing agreement; inflation; deflation; goods in transit; goods on consignment; goods damaged or obsolete (deteriorate) ; goods work-in-progress; incidental cost; inventory costing method; physical flow of goods and cost flow of inventory; cost in or out of inventory; specific identification; First-in, First-out; Last-in, First-out; Weighted average;商业决策;贷款决策;投资;回报;融资;资本成本;股息,红利,本金;利率;账面价值;历史价值;残值;残值;数量;按比例;礼品卡;礼券,礼券,奖金;工资,工资,养老金;福利;利息;假期,假期,纸箱,卡通,专利,商标,版权,特许经营;商誉;许可协议;通货膨胀,通货紧缩,货物在运输途中,货物托运;货物损坏或过时(恶化),货物在制品;杂项费用,存货成本核算方法;商品实质流程和存货成本流;成本或库存,具体识别;先进,先进先出,后进先出,加权平均,,identify; record; classify; communicate; analyze; interpret; prepare financial statement (trial balance); present; manipulate; disclose; withdraw; own; owe; yield; prescribe; summarize; journalize; post; credit; debit; understate; overstate; adjust; defer; subtract; add; multiply; divide; transfer; update; come due; smooth out changes in cost; match cost with revenue;识别、记录、分类;沟通;分析;解释;准备财务报表(试);现在,操纵;披露;撤资;自己所有的;欠;产量;规定;总结;记日记账;宣布;贷方;借方;低估;高估;调整;推迟;减少;增加;乘;分化;转移;更新;到期;平滑变化成本;成本与收入匹配;Financial management terms财务管理方面Part A-Chapter 1部分一章1Financial accounting, Managerial accounting, and Financial management财务会计、管理会计和财务管理Investment decision, Financing decision, and Dividend decision投资决策、融资决策和股利决策Enterprise, company, firm, business, proprietorship, partnership, corporation企业、公司、公司、企业,独资企业,合伙企业,公司Listed company or quoted company上市公司或上市公司Stock exchange listing regulation证券交易所上市的监管Voluntary and Not-for-profit organization, economy, effectiveness and efficiency自愿和非营利性组织、经济、有效性和效率Corporate strategy and financial strategy公司战略和财务战略Accounting principle, rules, standards, and assumptions会计原则、规则、标准和假设Going-concern basis, accounting period, accounting entity, and stable monetary unit assumption 持续经营基础上,会计期间、会计主体和稳定货币单位的假设Monetary and non-monetary measures货币和非货币性的措施Financial statement and Financial report财务报表和财务报告Balance sheet or statement of financial position资产负债表或财务状况的声明Income statement, Cash flow statement, and Statement of owner’s equity损益表、现金流量表和所有者权益的声明Financial objectives or targets财务目标或目标Identification and formulation of objectives识别和制定目标The welfare of employee, of management, of society员工的福利,社会的管理The fulfillment of responsibility towards customers and suppliers实现对客户和供应商的责任Shareholders’ wealth maximization股东财富最大化Profitability, growth, customer satisfaction盈利能力、增长、客户满意度Financial achievement财务成果Actual performance and forecast performance实际性能和预测性能Disproportionate to true worth不成比例的真实价值Drawback, advantage, disadvantage, shortcoming缺点,优点,缺点,缺点Agency relationship, goal congruence代理关系,目标一致Corporate governance, internal control, and risk management公司治理、内部控制和风险管理Reward scheme, performance-related pay, extrinsic and intrinsic rewards奖励计划,绩效工资,外在和内在的回报Accountability, good supervision,问责,监督好,Remuneration committee, nomination committee, independent non-executive director薪酬委员会、提名委员会、独立非执行董事Accountant and Auditor会计和审计Shareholder or stockholder, and Stakeholder, creditor and debt holder股东或股东和利益相关者,债权人和债务持有人Employees, directors; managers, pensioners, shareholders, debt holders, investors, customers, bankers, suppliers, competitors, government, pressure groups, local and national communities, professional and regulatory bodies雇员、董事、管理人员、退休人员、股东、债权人、投资者、客户、银行家、供应商、竞争对手、政府、压力团体,地方和全国社区、专业和监管机构Securities, bond, stock, loan, bank overdraft, saving, debenture, treasury, accounts receivable,证券,债券,股票,贷款,银行透支,储蓄、债券、财政部、应收帐款、Working capital, shareholders’ fund or equity营运资本,股东的基金或股票Input, output, yield, product, production, productivity,输入、输出、产量、产品、生产、生产力、As set, liabilities, owners’ equity, revenue, expense profit资产、负债、所有者权益、收入、费用利润Current asset, accounts receivable, inventory流动资产、应收帐款、库存Non-current asset, plant and equipment, fixed asset非流动资产,厂房和设备,固定资产Volume of investment, risk and return of investment的投资,投资的风险和回报Short-term, medium-term, long-term funds, shortfall in fund短期、中期、长期的基金,基金缺口Net present value, book value, market value, added value, nominal value and real value 净现值、账面价值、市场价值,附加价值,名义价值和实际价值Benefit, gain, interest, dividend, earnings, retained earnings, profit retention利益,收益,利息、股息、获利、留存收益、利润保留Ordinary share, preference share普通股、优先股Business risk and financial risk商业风险和金融风险Accounting profit and economic profit会计利润和经济利润Manipulation of profit操纵利润Capitalization资本化Ratio, index, indicator, variables比率指标,指标变量Bad debt, depreciation坏账、折旧Cost of goods sold销货成本Provision for depreciation or anticipated losses折旧准备或预期的损失Overhead cost, development cost, and various expenses间接成本、开发成本和各种费用Administration or selling and distribution expenses管理或销售和分销费用Cum dividend or Ex dividend带息或除息Financial analysis, ratio analysis财务分析中,比率分析Return on equity, return on investment, asset turnover, gearing level,股本回报率,投资回报率,资产周转率,杠杆水平,Profit before and after tax之前和税后利润Profit before interest and tax (PBIT)息税前利润(PBIT)Gross profit margin and net profit margin毛利率和净利润率Return on capital employed (ROCE) or return on investment (ROI)已投资资本回报(ROCE)或投资回报(ROI)EPS, earnings per share每股收益,每股收益Earnings attributable to ordinary shareholders业绩归因于普通股东Profit distributable to ordinary shareholders普通股东可分配利润Weighted average number of ordinary shares加权平均普通股的数量P/E ratio市盈率Dividend per share每股派息Dividend yield股息收益率Part B-Chapter 2, Chapter 3一部分B-Chapter 2,第3章Microeconomics, macroeconomics; policy instrument; economic growth, low inflation, full employment, balance of payment stability; monetary policy, fiscal policy, exchange policy, external trade policy; retail price index (RPI), gross domestic production (GDP); speculation; national income; living standard; subsidies; economies of scale; imperfect competition; acquisition and merger; monopoly; legislation, regulation, deregulation; privatization;微观经济学,宏观经济学,政策工具;经济增长、低通胀、充分就业,收支稳定;货币政策,财政政策,汇率政策、对外贸易政策;零售价格指数(RPI),国内生产总值(GDP);投机;国民收入,生活水平;补贴;规模经济、不完全竞争、兼并;垄断;立法、监管、放松管制、私有化;aggregate demand; surplus and deficit; demand and supply; expenditure; saving, borrowing, lending, spending, deposit, loan; raise money; interest rate, exchange rate, rate of return; fixed, floating and managed (dirty) exchange rate; hard currency; intermediate or forward; outsource; market segmentation;总需求;盈余和赤字;供需;开支;储蓄,借贷,借贷,消费,存款、贷款;筹集资金,利率,汇率,回报率;固定,浮动汇率和管理(脏);硬通货;中间或向前;外包;市场细分;financial intermediaries or institution; money market, capital market; main market, interbank market; primary market, secondary market; insurance company and pension fund, trust company, venture capital organization; risk pooling; diversified portfolios; mutual fund;金融中介机构或机构,货币市场、资本市场,主要市场,银行间市场,一级市场、二级市场、保险公司和养老基金,信托公司,风险资本组织;风险池;多元化投资组合,共同基金;Part C-Chapter 4, Chapter 5C-Chapter 4部分,第五章Working capital; cash, raw materials, work in progress, finished goods, accounts receivable, accounts payable, marketable securities;营运资本;现金,原材料、工作进展,成品,应收账款,应付账款,有价证券;Cash operating cycle, working capital cycle, trading cycle, cash conversion cycle;现金营业周期、流动资金循环,交易周期,现金转换周期;Liquidity ratio; current ratio, quick ratio (acid test ratio, instant ratio), accounts receivable payment period, inventory (accounts payable) turnover, inventory turnover period; over-capitalization, over-trading;流动比率,流动比率,速动比率(酸性测试比率,即时比率),应收账款的付款期,库存(应付帐款)营业额,存货周转期;over-capitalization,交易;Economic order quantity, bulk discount, buffer inventory, lead time, re-order level, safety inventory level,stock-out, just-in-time procurement,经济订货批量、批量折扣、缓冲库存,交货时间,再订购水平,安全库存水平、库存中断,及时采购、Creditworthiness assessment, factoring, invoice discounting, credit insurance,信誉评估、保理、发票贴现、信贷保险,。

IFRS9原文

November 2009IFRS 9 Financial InstrumentsInternational Financial Reporting Standard 9 Financial InstrumentsIFRS 9 Financial Instr uments is issued by the International Accounting Standards Board (IASB), 30 Cannon Street, London EC4M 6XH, United Kingdom.Tel: +44 (0)20 7246 6410Fax: +44 (0)20 7246 6411Email: iasb@Web: The I ASB, the I nternational Accounting Standards Committee Foundation (IASCF), the authors and the publishers do not accept responsibility for loss caused to any person who acts or refrains from acting in reliance on the material in this publication, whether such loss is caused by negligence or otherwise.ISBN for this part: 978-1-907026-47-8ISBN for complete publication (three parts): 978-1-907026-46-1Copyright © 2009 IASCF®International Financial Reporting Standards (including International Accounting Standards and SI C and I FRI C I nterpretations), Exposure Drafts, and other I ASB publications are copyright of the I ASCF. The approved text of I nternational Financial Reporting Standards and other IASB publications is that published by the IASB in the English language. Copies may be obtained from the IASCF. Please address publications and copyright matters to:IASC Foundation Publications Department,1st Floor, 30 Cannon Street, London EC4M 6XH, United Kingdom.Tel: +44 (0)20 7332 2730 Fax: +44 (0)20 7332 2749Email: publications@ Web: All rights reserved. No part of this publication may be translated, reprinted or reproduced or utilised in any form either in whole or in part or by any electronic, mechanical or other means, now known or hereafter invented, including photocopying and recording, or in any information storage and retrieval system, without prior permission in writing from the IASCF.The IASB logo/the IASCF logo/‘Hexagon Device’, the IASC Foundation Education logo, ‘IASC Foundation’, ‘e IFRS’, ‘IAS’, ‘IASB’, ‘IASC’, ‘IASCF’, ‘IASs’, ‘IFRIC’, ‘IFRS’,‘IFRSs’, ‘International Accounting Standards’, ‘International Financial Reporting Standards’ and ‘SIC’ are Trade Marks of the IASCF.IFRS 9 F INANCIAL I NSTRUMENTSC ONTENTSparagraphsINTRODUCTIONINTERNATIONAL FINANCIAL REPORTING STANDARD 9 FINANCIAL INSTRUMENTSCHAPTERS1 OBJECTIVE 1.12 SCOPE 2.13 RECOGNITION AND DERECOGNITION 3.1.1–3.1.24 CLASSIFICATION 4.1–4.95 MEASUREMENT 5.1.1–5.4.56 HEDGE ACCOUNTING NOT USED7 DISCLOSURES NOT USED8 EFFECTIVE DATE AND TRANSITION8.1.1–8.2.13 APPENDICESA Defined termsB Application guidanceC Amendments to other IFRSs (see separate booklet)APPROVAL BY THE BOARD OF IFRS 9 FINANCIAL INSTRUMENTSISSUED IN NOVEMBER 2009AMENDMENTS TO THE GUIDANCE ON OTHER IFRSs (see separate booklet) BASIS FOR CONCLUSIONS(see separate booklet)APPENDIXAmendments to the Basis for Conclusions on other IFRSs3© Copyright IASCFI NTERNATIONAL F INANCIAL R EPORTING S TANDARD N OVEMBER 2009 International Financial Reporting Standard 9 Financial Instruments (IFRS 9) is set out in paragraphs 1.1–8.2.13 and Appendices A–C. All the paragraphs have equal authority. Paragraphs in bold type state the main principles. Terms defined in Appendix A are in italics the first time they appear in the I FRS. Definitions of other terms are given in the Glossary for International Financial Reporting Standards. IFRS 9 should be read in the context of its objective and the Basis for Conclusions, the Preface to International Financial Reporting Standards and the Framework for the Preparation and Presentation of Financial Statements. IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors provides a basis for selecting and applying accounting policies in the absence of explicit guidance.© Copyright IASCF4IFRS 9 F INANCIAL I NSTRUMENTSIntroductionReasons for issuing the IFRSN1AS 39 Financial Instr uments: Recognition and Measur ement sets out the requirements for recognising and measuring financial assets, financialliabilities and some contracts to buy or sell non-financial items.The I nternational Accounting Standards Board (I ASB) inherited I AS 39from its predecessor body, the nternational Accounting StandardsCommittee.IN2Many users of financial statements and other interested parties have told the Board that the requirements in I AS 39 are difficult to understand,apply and interpret. They have urged the Board to develop a newstandard for financial reporting for financial instruments that isprinciple-based and less complex. Although the Board has amendedIAS39 several times to clarify requirements, add guidance and eliminateinternal inconsistencies, it has not previously undertaken a fundamentalreconsideration of reporting for financial instruments.IN3Since 2005, the IASB and the US Financial Accounting Standards Board (FASB) have had a long-term objective to improve and simplify the reporting for financial instruments. This work resulted in thepublication of a discussion paper, Reducing Complexity in Reporting Financial Instruments, in March 2008. Focusing on the measurement of financial instruments and hedge accounting, the paper identified several possibleapproaches for improving and simplifying the accounting for financialinstruments. The responses to the paper indicated support for asignificant change in the requirements for reporting financialinstruments. In November 2008 the IASB added this project to its activeagenda, and in December 2008 the FASB also added the project to itsagenda.IN4In April 2009, in response to the input received on its work responding to the financial crisis, and following the conclusions of the G20 leaders andthe recommendations of international bodies such as the Financial Stability Board, the I ASB announced an accelerated timetable forreplacing IAS 39. As a result, in July 2009 the IASB published an exposuredraft Financial Instruments: Classification and Measurement, followed by IFRS 9Financial Instruments in November 2009.5© Copyright IASCFI NTERNATIONAL F INANCIAL R EPORTING S TANDARD N OVEMBER 2009IN5In developing IFRS 9 the Board considered input obtained in response to its discussion paper, the report from the Financial Crisis Advisory Grouppublished in July 2009, the responses to the exposure draft and otherdiscussions with interested parties, including three public round tablesheld to discuss the proposals in that exposure draft. The IASB staff alsoobtained additional feedback from users of financial statements andothers through an extensive outreach programme.The Board’s approach to replacing IAS 39IN6The Board intends that IFRS 9 will ultimately replace IAS 39 in its entirety.However, in response to requests from interested parties that theaccounting for financial instruments should be improved quickly, theBoard divided its project to replace IAS 39 into three main phases. As theBoard completes each phase, as well as its separate project on thederecognition of financial instruments, it will delete the relevantportions of AS 39 and create chapters in FRS 9 that replace therequirements in IAS 39. The Board aims to replace IAS 39 in its entiretyby the end of 2010.IN7The Board included proposals for the classification and measurement of financial liabilities in the exposure draft that preceded IFRS 9. In thatexposure draft the Board also drew attention to the discussion paperCr edit Risk in Liability Measur ement published in June 2009. n theirresponses to the exposure draft and discussion paper, many expressedconcern about recognising changes in an entity’s own credit risk in theremeasurement of liabilities. During its redeliberations on theclassification and measurement of financial liabilities, the Board decidednot to finalise the requirements for financial liabilities beforeconsidering those issues further and analysing possible approaches toaddress the concerns raised by respondents.I N8Accordingly, in November 2009 the Board issued the chapters of I FRS 9relating to the classification and measurement of financial assets.The Board addressed those matters first because they form the foundationof a standard on reporting financial instruments. Moreover, many of theconcerns expressed during the financial crisis arose from the classificationand measurement requirements for financial assets in IAS 39.© Copyright IASCF6IFRS 9 F INANCIAL I NSTRUMENTSIN9The Board sees this first instalment on classification and measurement of financial assets as a stepping stone to future improvements in thefinancial reporting of financial instruments and is committed tocompleting its work on classification and measurement of financial instruments expeditiously.Main features of the IFRSI N10Chapters 4 and 5 of I FRS 9 specify how an entity should classify andmeasure financial assets, including some hybrid contracts. They requireall financial assets to be:(a)classified on the basis of the entity’s business model for managingthe financial assets and the contractual cash flow characteristics ofthe financial asset.(b)initially measured at fair value plus, in the case of a financial assetnot at fair value through profit or loss, particular transaction costs.(c)subsequently measured at amortised cost or fair value.IN11These requirements improve and simplify the approach for classification and measurement of financial assets compared with the requirements ofIAS 39. They apply a consistent approach to classifying financial assetsand replace the numerous categories of financial assets in IAS 39, each ofwhich had its own classification criteria. They also result in oneimpairment method, replacing the numerous impairment methods inIAS 39 that arise from the different classification categories.Next stepsIN12IFRS 9 is the first part of Phase 1 of the Board’s project to replace IAS 39.The main phases are:(a)Phase 1: Classification and measurement. The exposure draftFinancial Instruments: Classification and Measurement, published in July2009, contained proposals for both assets and liabilities within thescope of IAS 39. The Board is committed to completing its work onfinancial liabilities expeditiously and will include requirements forfinancial liabilities in IFRS 9 in due course.(b)Phase 2: I mpairment methodology. On 25 June 2009 the Boardpublished a Request for nformation on the feasibility of anexpected loss model for the impairment of financial assets. This7© Copyright IASCFI NTERNATIONAL F INANCIAL R EPORTING S TANDARD N OVEMBER 2009formed the basis of an exposure draft, Financial Inst r uments:Amor tised Cost and Impair ment, published in November 2009 with acomment deadline of 30 June 2010. The Board is also setting up anexpert advisory panel to address the operational issues arisingfrom an expected cash flow approach.(c)Phase 3: Hedge accounting. The Board has started to consider howto improve and simplify the hedge accounting requirements ofIAS39 and expects to publish proposals shortly.IN13In addition to those three phases, the Board published in March 2009 an exposure draft Derecognition (proposed amendments to IAS 39 and IFRS 7).Redeliberations are under way and the Board expects to complete thisproject in the second half of 2010.IN14As stated above, the Board aims to have replaced IAS 39 in its entirety by the end of 2010.IN15The IASB and the FASB are committed to achieving by the end of 2010 a comprehensive and improved solution that provides comparabilityinternationally in the accounting for financial instruments. However,those efforts have been complicated by the differing project timetablesestablished to respond to the respective stakeholder groups. The IASB andFASB have developed strategies and plans to achieve a comprehensive andimproved solution that provides comparability internationally. As part ofthose plans, they reached agreement at their joint meeting in October2009 on a set of core principles designed to achieve comparability andtransparency in reporting, consistency in accounting for creditimpairments, and reduced complexity of financial instrumentaccounting.© Copyright IASCF8IFRS 9 F INANCIAL I NSTRUMENTS9© Copyright IASCF International Financial Reporting Standard 9 Financial InstrumentsChapter 1 Objective1.1The objective of this I FRS is to establish principles for the financialreporting of financial assets that will present relevant and useful information to users of financial statements for their assessment of the amounts, timing and uncertainty of the entity’s future cash flows.Chapter 2 Scope2.1An entity shall apply this I FRS to all assets within the scope of I AS 39Financial Instruments: Recognition and Measurement .Chapter 3 Recognition and derecognition3.1 Initial recognition of financial assets3.1.1An entity shall recognise a financial asset in its statement of financialposition when, and only when, the entity becomes party to the contractual provisions of the instrument (see paragraphs AG34 and AG35 of IAS 39).When an entity first recognises a financial asset, it shall classify it in accordance with paragraphs 4.1–4.5 and measure it in accordance with paragraph 5.1.1.3.1.2 A regular way purchase or sale of a financial asset shall be recognised andderecognised in accordance with paragraphs 38 and AG53–AG56 of IAS 39.Chapter 4 Classification4.1U nless paragraph 4.5 applies, an entity shall classify financial assets assubsequently measured at either amortised cost or fair value on the basis of both:(a)the entity’s business model for managing the financial assets; and (b)the contractual cash flow characteristics of the financial asset.I NTERNATIONAL F INANCIAL R EPORTING S TANDARD N OVEMBER 20094.2 A financial asset shall be measured at amortised cost if both of thefollowing conditions are met:(a)the asset is held within a business model whose objective is to holdassets in order to collect contractual cash flows.(b)the contractual terms of the financial asset give rise on specifieddates to cash flows that are solely payments of principal and intereston the principal amount outstanding.Paragraphs B4.1–B4.26 provide guidance on how to apply these conditions.4.3For the purpose of this IFRS, interest is consideration for the time value ofmoney and for the credit risk associated with the principal amountoutstanding during a particular period of time.4.4 A financial asset shall be measured at fair value unless it is measured atamortised cost in accordance with paragraph 4.2.Option to designate a financial asset at fair valuethrough profit or loss4.5Notwithstanding paragraphs 4.1–4.4, an entity may, at initial recognition,designate a financial asset as measured at fair value through profit or lossif doing so eliminates or significantly reduces a measurement orrecognition inconsistency (sometimes referred to as an ‘accountingmismatch’) that would otherwise arise from measuring assets or liabilitiesor recognising the gains and losses on them on different bases(see paragraphs AG4D–AG4G of IAS 39).Embedded derivatives4.6An embedded derivative is a component of a hybrid contract that alsoincludes a non-derivative host—with the effect that some of the cash flowsof the combined instrument vary in a way similar to a stand-alonederivative. An embedded derivative causes some or all of the cash flowsthat otherwise would be required by the contract to be modifiedaccording to a specified interest rate, financial instrument price,commodity price, foreign exchange rate, index of prices or rates, creditrating or credit index, or other variable, provided in the case of anon-financial variable that the variable is not specific to a party to thecontract. A derivative that is attached to a financial instr ument but iscontractually transferable independently of that instrument, or has adifferent counterparty, is not an embedded derivative, but a separatefinancial instrument.© Copyright IASCF10IFRS 9 F INANCIAL I NSTRUMENTS4.7If a hybrid contract contains a host that is within the scope of this IFRS, anentity shall apply the requirements in paragraphs 4.1–4.5 to the entire hybrid contract.4.8If a hybrid contract contains a host that is not within the scope of this IFRS,an entity shall apply the requirements in paragraphs 11–13 and AG27–AG33B of IAS 39 to determine whether it must separate the embeddedderivative from the host. If the embedded derivative must be separatedfrom the host, the entity shall:(a)classify the derivative in accordance with either paragraphs 4.1–4.4for derivative assets or paragraph 9 of IAS 39 for all other derivatives;and(b)account for the host in accordance with other IFRSs.Reclassification4.9When, and only when, an entity changes its business model for managingfinancial assets it shall reclassify all affected financial assets in accordancewith paragraphs 4.1–4.4.Chapter 5 Measurement5.1 Initial measurement of financial assets5.1.1At initial recognition, an entity shall measure a financial asset at its fairvalue (see paragraphs 48, 48A and AG69–AG82 of IAS 39) plus, in the case ofa financial asset not at fair value through profit or loss, transaction costs thatare directly attributable to the acquisition of the financial asset.5.2 Subsequent measurement of financial assets5.2.1After initial recognition, an entity shall measure a financial asset inaccordance with paragraphs 4.1–4.5 at fair value (see paragraphs 48, 48A andAG69–AG82 of IAS 39) or amortised cost.5.2.2An entity shall apply the impairment requirements in paragraphs 58–65and AG84–AG93 of IAS 39 to financial assets measured at amortised cost.5.2.3An entity shall apply the hedge accounting requirements in paragraphs89–102 of IAS 39 to a financial asset that is designated as a hedged item(see paragraphs 78–84 and AG98–AG101 of IAS 39).11© Copyright IASCFI NTERNATIONAL F INANCIAL R EPORTING S TANDARD N OVEMBER 20095.3 Reclassification5.3.1If an entity reclassifies financial assets in accordance with paragraph 4.9, itshall apply the reclassification prospectively from the reclassification date.The entity shall not restate any previously recognised gains, losses orinterest.5.3.2If, in accordance with paragraph 4.9, an entity reclassifies a financial assetso that it is measured at fair value, its fair value is determined at thereclassification date. Any gain or loss arising from a difference between theprevious carrying amount and fair value is recognised in profit or loss.5.3.3If, in accordance with paragraph 4.9, an entity reclassifies a financial assetso that it is measured at amortised cost, its fair value at the reclassificationdate becomes its new carrying amount.5.4 Gains and losses5.4.1 A gain or loss on a financial asset that is measured at fair value and is notpart of a hedging relationship (see paragraphs 89–102 of IAS 39) shall berecognised in profit or loss unless the financial asset is an investment in anequity instrument and the entity has elected to present gains and losses onthat investment in other comprehensive income in accordance withparagraph 5.4.4.5.4.2 A gain or loss on a financial asset that is measured at amortised cost and isnot part of a hedging relationship (see paragraphs 89–102 of IAS 39) shall berecognised in profit or loss when the financial asset is derecognised,impaired or reclassified in accordance with paragraph 5.3.2, and throughthe amortisation process.5.4.3 A gain or loss on financial assets that are(a)hedged items (see paragraphs 78–84 and AG98–AG101 of IAS 39) shallbe recognised in accordance with paragraphs 89–102 of IAS 39.(b)accounted for using settlement date accounting shall be recognisedin accordance with paragraph 57 of IAS 39.Investments in equity instruments5.4.4At initial recognition, an entity may make an irrevocable election to presentin other comprehensive income subsequent changes in the fair value of aninvestment in an equity instrument within the scope of this IFRS that is notheld for trading.© Copyright IASCF12IFRS 9 F INANCIAL I NSTRUMENTS5.4.5If an entity makes the election in paragraph 5.4.4, it shall recognise inprofit or loss dividends from that investment when the entity’s right toreceive payment of the dividend is established in accordance with IAS 18 Revenue.Chapter 6 Hedge accounting – not usedChapter 7 Disclosures – not usedChapter 8 Effective date and transition8.1 Effective date8.1.1An entity shall apply this IFRS for annual periods beginning on or after1January 2013. Earlier application is permitted. If an entity applies thisIFRS in its financial statements for a period beginning before 1 January2013, it shall disclose that fact and at the same time apply theamendments in Appendix C.8.2 Transition8.2.1An entity shall apply this IFRS retrospectively, in accordance with IAS 8Accounting Policies, Changes in Accounting Estimates and Er or s, except as specified in paragraphs 8.2.4–8.2.13. This I FRS shall not be applied tofinancial assets that have already been derecognised at the date of initialapplication.8.2.2For the purposes of the transition provisions in paragraphs 8.2.3–8.2.13,the date of initial application is the date when an entity first applies the requirements of this IFRS. The date of initial application may be:(a)any date between the issue of this IFRS and 31 December 2010, forentities initially applying this IFRS before 1 January 2011; or(b)the beginning of the first reporting period in which the entityadopts this IFRS, for entities initially applying this IFRS on or after1 January 2011.8.2.3I f the date of initial application is not at the beginning of a reportingperiod, the entity shall disclose that fact and the reasons for using thatdate of initial application.13© Copyright IASCFI NTERNATIONAL F INANCIAL R EPORTING S TANDARD N OVEMBER 20098.2.4At the date of initial application, an entity shall assess whether a financialasset meets the condition in paragraph 4.2(a) on the basis of the facts andcircumstances that exist at the date of initial application. The resultingclassification shall be applied retrospectively irrespective of the entity’sbusiness model in prior reporting periods.8.2.5If an entity measures a hybrid contract at fair value in accordance withparagraph 4.4 or paragraph 4.5 but the fair value of the hybrid contracthad not been determined in comparative reporting periods, the fair valueof the hybrid contract in the comparative reporting periods shall be thesum of the fair values of the components (ie the non-derivative host andthe embedded derivative) at the end of each comparative reportingperiod.8.2.6At the date of initial application, an entity shall recognise any differencebetween the fair value of the entire hybrid contract at the date of initialapplication and the sum of the fair values of the components of thehybrid contract at the date of initial application:(a)in the opening retained earnings of the reporting period of initialapplication if the entity initially applies this IFRS at the beginningof a reporting period; or(b)in profit or loss if the entity initially applies this I FRS during areporting period.8.2.7At the date of initial application, an entity may designate:(a) a financial asset as measured at fair value through profit or loss inaccordance with paragraph 4.5; or(b)an investment in an equity instrument as at fair value throughother comprehensive income in accordance with paragraph 5.4.4.Such designation shall be made on the basis of the facts andcircumstances that exist at the date of initial application. Thatclassification shall be applied retrospectively.8.2.8At the date of initial application, an entity:(a)shall revoke its previous designation of a financial asset asmeasured at fair value through profit or loss if that financial assetdoes not meet the condition in paragraph 4.5.(b)may revoke its previous designation of a financial asset asmeasured at fair value through profit or loss if that financial assetmeets the condition in paragraph 4.5.© Copyright IASCF14IFRS 9 F INANCIAL I NSTRUMENTSSuch revocation shall be made on the basis of the facts and circumstancesthat exist at the date of initial application. That classification shall beapplied retrospectively.8.2.9At the date of initial application, an entity shall apply paragraph 103M ofIAS 39 to determine when it:(a)may designate a financial liability as measured at fair value throughprofit or loss; and(b)shall or may revoke its previous designation of a financial liabilityas measured at fair value through profit or loss.Such revocation shall be made on the basis of the facts and circumstancesthat exist at the date of initial application. That classification shall beapplied retrospectively.8.2.10 f it is impracticable (as defined in AS 8) for an entity to applyretrospectively the effective interest method or the impairment requirementsin paragraphs 58–65 and AG84–AG93 of IAS 39, the entity shall treat thefair value of the financial asset at the end of each comparative period asits amortised cost. In those circumstances, the fair value of the financial asset at the date of initial application shall be treated as the newamortised cost of that financial asset at the date of initial application ofthis IFRS.8.2.11If an entity previously accounted for an investment in an unquotedequity instrument (or a derivative that is linked to and must be settled bydelivery of such an unquoted equity instrument) at cost in accordancewith IAS 39, it shall measure that instrument at fair value at the date ofinitial application. Any difference between the previous carrying amountand fair value shall be recognised in the opening retained earnings of thereporting period that includes the date of initial application.8.2.12Notwithstanding the requirement in paragraph 8.2.1, an entity thatadopts this IFRS for reporting periods beginning before 1 January 2012need not restate prior periods. If an entity does not restate prior periods,the entity shall recognise any difference between the previous carryingamount and the carrying amount at the beginning of the annual reporting period that includes the date of initial application in theopening retained earnings (or other component of equity, as appropriate)of the reporting period that includes the date of initial application.15© Copyright IASCFI NTERNATIONAL F INANCIAL R EPORTING S TANDARD N OVEMBER 20098.2.13If an entity prepares interim financial reports in accordance with IAS 34Interim Financial Reporting the entity need not apply the requirements inthis IFRS to interim periods prior to the date of initial application if it isimpracticable (as defined in IAS 8).© Copyright IASCF16IFRS 9 F INANCIAL I NSTRUMENTSAppendix ADefined termsThis appendix is an integral part of the IFRS.reclassification date The first day of the first reporting period following thechange in business model that results in an entityreclassifying financial assets.The following terms are defined in paragraph 11 of IAS 32 or paragraph 9 of IAS39 and are used in this IFRS with the meanings specified in IAS 32 or IAS 39:(a)amortised cost of a financial asset or financial liability(b)derivative(c)effective interest method(d)equity instrument(e)fair value(f)financial asset(g)financial instrument(h)financial liability(i)hedged item(j)hedging instrument(k)held for trading(l)regular way purchase or sale(m)transaction costs.17© Copyright IASCF。

fair value accounting

Accounting Forum28(2004)167–179Another step towards full fair value accounting forﬁnancial instrumentsFrancisco Gabriel Hernández Hernández∗Facultad de Ciencias Económicas y Empresariales,University of La Laguna,Campus de Guajara s/n,38071LALaguna,Tenerife,SpainReceived14September2003;accepted12December2003AbstractThe international Joint Working Group of Standard Setters(JWG)was established by the IASC (replaced by the IASB in2001)and other national accounting standard setters for the purpose of devel-oping a comprehensive set of principles for reportingﬁnancial instrument at fair value.In December 2000the JWG issued a Draft Standard addressing the accounting forﬁnancial instruments and similar items.The proposals in the Draft Standard would affect existing accounting practice in many areas, including those related to the use of hedge accounting.This article states the main problems that could result from applying the provisions of that Draft Standard,offering some alternative approaches to overcome those problems.©2004Elsevier Ltd.All rights reserved.Keywords:Fair value;Financial instruments;Accounting standards;JWG1.IntroductionIn1997the International Joint Working Group of Standard Setters(hereafter JWG)was formed to develop an integrated and harmonized standard onﬁnancial instruments.The JWG comprises representatives or members of accounting standard setters or professional organizations in Australia,Canada,France,Germany,Japan,New Zealand,ﬁve Nordic countries,the UK,the United States,and the IASC.In December2000,the JWG(2000)issued a Draft Standard with the primary objective of reﬂecting,in an enterprise’s balance sheet and income statement,the effects of events on the∗Tel.:+34922317003;fax:+34922317003.E-mail address:fghernan@ull.es(F.G.Hern´a ndez Hern´a ndez).0155-9982/$–see front matter©2004Elsevier Ltd.All rights reserved.doi:10.1016/j.accfor.2003.12.001168F.G.Hern´a ndez Hern´a ndez/Accounting Forum28(2004)167–179fair value of the enterprise’sﬁnancial instruments,and certain similar items,in the periods in which those events occur.It establishes principles for recognition,measurement,presen-tation and disclosure ofﬁnancial instruments and similar items in theﬁnancial statements of all enterprises.The proposed principles in the Draft Standard could contribute to eliminating some of the comparability problems arising from the application of other International Accounting Standards.Nonetheless,the implementation of the provisions of the JWG could create other additional problems.In the following sections I discuss the provisions of the Draft Standard and the deﬁciencies and difﬁculties in applying the proposals of the Draft Standard.2.Scope and deﬁnitions in the Draft StandardThe provisions of the Draft Standard apply to all enterprises in accounting for allﬁnancial instruments,except for certainﬁnancial instruments that are accounted for in accordance with other existing International Accounting Standards.In this sense,the onlyﬁnancial assets and liabilities excluded from the scope are:interests in subsidiaries,associates and joint ventures;employer’s assets and liabilities under employee beneﬁt plans;retirement beneﬁt obligations of deﬁned beneﬁt plans;certain rights and obligations with insurance risk resulting from insurance contracts;equity instruments issued and classiﬁed as equity by the reporting enterprise;business combination contracts involving contingent consideration; and license fees,royalties and similar items.In this regard,the AICPA(2001)considers that the deﬁnition of aﬁnancial instrument should not be modiﬁed by excluding items that qualify asﬁnancial instruments or by including non-ﬁnancial assets.Furthermore,the Draft Standard includes in its scope other items that are notﬁnancial instruments.This is the case of contracts to buy or sell a non-ﬁnancial item that can be settled net by aﬁnancial instrument.“Settled net”means settling a contract by delivering cash or anotherﬁnancial instrument in an amount reﬂecting the difference between the fair value of a non-ﬁnancial item and the fair value of the consideration to be exchanged for the non-ﬁnancial item.The JWG Draft Standard considers that a contract can be settled net by aﬁnancial instrument if any of the following circumstances exist:(a)the terms of the contract explicitly or implicitly permit either party to settle net by aﬁnancial instrument;(b)there is an established market mechanism,or side agreement,outside the contract thatfacilitates settlement net by aﬁnancial instrument;or(c)the non-ﬁnancial item that is the subject of the contract has interchangeable(fungible)units,which are exactly the same as those for which an active market exists.Financial instruments and fair value are deﬁned in the Draft Standard in a similar way to the one in previous international accounting standards.Thus,aﬁnancial instrument is deﬁned as:(a)cash;(b)an equity instrument;F.G.Hern´a ndez Hern´a ndez/Accounting Forum28(2004)167–179169 (c)a contractual obligation of one party to deliver aﬁnancial instrument to a second partyand a corresponding contractual right of the second party to receive thatﬁnancial in-strument in exchange for no consideration other than release from the obligation;or (d)a contractual obligation of one party to exchangeﬁnancial instruments with a secondparty and a contractual right of the second party to require an exchange ofﬁnancial instruments with theﬁrst party.With respect to fair value,the JWG states that it is an estimate of the price an enterprise would have received if it had sold an asset or paid if it had been relieved of a liability on the measurement date in an arm’s length exchange motivated by normal business considerations.3.Fair value measurementThe Draft Standard of the JWG represents another stage in the fair value accounting.In this sense,it states that allﬁnancial instruments should be measured at fair value when they are recognized initially,and they should be re-measured at fair value at each subsequent measurement date.At the same time,the JWG sets out that all gains and losses arising from changes in the fair value ofﬁnancial instruments are income and should be recognized as income immediately when they arise.Applying fair value measurement to allﬁnancial instruments would overcome some of the problems arising from previous International Accounting Standards onﬁnancial instruments.In this regard,under IAS39(IASC,1998)the sameﬁnancial instrument can be measured at amortized cost or at fair value,depending on the category in which the ﬁnancial instrument is included.In this way,the use of managerial intent as a criterion to distinguish among different categories of securities can lead to comparability problems (Ponemom&Raghunandan,1993).Similarly,Schipper(2003)notes that,to the extent that alternatives cause similar items to receive different accounting treatment,comparability is reduced.In this same sense,Ivancevich,Cocco,and Ivancevich(1996)demonstrate that classiﬁcation differences can affect keyﬁnancial ratios such as earnings per share,the debt to equity ratio and the current ratio,ﬁnancial ratios which are often important in investment and credit decisions.Therefore,the application of IAS39could result in problems of comparability amongﬁrms,even though thoseﬁrms hold identical investment securities. The Draft Standard eliminates such problems by applying the same measurement attribute to allﬁnancial instruments,regardless of how theﬁnancial instruments are classiﬁed. Nonetheless,under the Draft Standard certainﬁnancial instruments are excluded from fair value measurement.At the same time,most other important assets and liabilities,such as stocks orﬁxed assets,which represent a much larger part of the total assets in the companies’balance sheet,are reported at their historical cost,even when their fair values can be reliably measured.It could be argued that mostﬁnancial instruments are acquired for trading;so,since they are going to be sold in a very short time with the purpose of obtaining a gain,their results have to be recognized in the proﬁt and loss account.However,most of the stocks are also bought with the intent of selling it in a short time,so it would be logical this kind of asset is measured in the same way;that is,at fair value,with changes in that value registered170F.G.Hern´a ndez Hern´a ndez/Accounting Forum28(2004)167–179directly in the net proﬁt or loss.For instance,inventories could readily be valued at the cost of replacement(Benston,1997).The JWG considers that non-ﬁnancial items must be used in a productive activity,and effectively transformed into goods or services,which must be sold,before there is any right to receive cash.However,one could argue that gains arising from changes in the fair value ofﬁnancial assets do not represent new rights to receive more cash.Since fair value measurement only applies to certainﬁnancial instruments,theﬁnancial statements will continue reﬂecting an inconsistent mix of cost and fair valueﬁgures.In other words,we will continue having the shortcomings of a mixed attribute model under which some assets and liabilities are measured based on historical cost,some at lower of cost or market,and some at fair value.On the other hand,the JWG sets out that a primary objective ofﬁnancial statements is to provide information to help investors,creditors,and other participants in capital markets to evaluate:(a)the abilities of enterprises to generate a return,that is,to generate net cash or equivalentinﬂows(and future earnings that are the source of those net cash inﬂows);and(b)the timing and uncertainties of those expected net cashﬂows.However,the evaluation of the abilities of enterprises to generate a return cannot be only based on the information about theirﬁnancial instruments,but also in their primary operating activities.This is especially true for non-ﬁnancial institutions,and for companies not holding a large number ofﬁnancial instruments.In the same way,Penman(2003) considers that the move to more and more fair value accounting should proceed with care, particularly for non-ﬁnancial institutions.He maintains that the danger is that we lose the information from revenue realization and matching and substitute market prices as biased and imprecise fair value estimates.Despite the relevance of fair value,the European Commission(2001)points out that it does not imply that historical cost will lose all of its relevance,both forms of information can be useful.At the same time,the European Commission considers that“substantial additional evidence needs to be assembled to support the underlying assertion that fair value is superior to historical cost for allﬁnancial instruments and that fair value can (subject to a minor exception)always be determined reliably”.In this sense,Khurana and Kim(2003)ﬁnd that fair value is less value relevant than historical cost when objective market-determined fair value measures are not available.Whereas historical cost accounting provides information to inform about prices,fair value accounting often derives the information from prices,so may destroy the ability to inform about prices(Penman,2003).In this sense,Macintosh,Shearer,Thornton,and Welker (2000)afﬁrm that“ironically,just as accounting standard setters are embracing the use of market values on company balance sheets,analysts and others useﬁnancial statement data to gauge whether the market value of the company’s stock has strayed from its fundamental or intrinsic value”.Likewise,they consider the following argument about the accounting forﬁnancial instruments:...the market uses accounting earnings,along with other information,to value companies’stock and other securities.The prices of these securities then become the underlyingF.G.Hern´a ndez Hern´a ndez/Accounting Forum28(2004)167–179171 factors that sustain the derivatives’prices and the self-referential sequence is complete. Companies’earnings determine security prices,which determine derivative prices,which determine companies’earnings.In short,neither the accounting sign nor theﬁnancial market sign appear to be grounded in any external reality.Instead,each model appeals to the other model for the only‘reality check’available.Accounting signs model market signs,which in turn model accounting signs.4.Estimating the fair value of aﬁnancial instrumentUnder the Draft Standard,an enterprise should base the fair value of aﬁnancial instrument on the following information,using the price information nearest the top of the list.(a)A market exit price for an identical instrument on the measurement date.(b)A market exit price for an identical instrument near enough to the measurement datethat the effect on fair value of the passage of time and changes in market conditions between the market date and the measurement date can be practicably estimated.(c)A market exit price for a similar instrument on the measurement date.(d)A market exit price for a similar instrument near enough to the measurement date thatthe effect on fair value of the passage of time and changes in market conditions between the market date and the measurement date can be practicably estimated.The Draft Standard states that the market exit price of aﬁnancial instrument traded on an exchange or other public market on which last traded prices are quoted daily is the daily closing price.An enterprise should adjust a price to reﬂect any differences between the instruments and for the passage of time and changes in market conditions.Although it can turn out more or less easy to adjust a value for the passage of time,it could be very difﬁcult to estimate the adjustment to make for recognizing the differences between instruments that have different characteristics such as different cashﬂows or a different credit risk.Therefore,aﬁnancial instrument could have different fair values depending on how the enterprise adjusts the market exit price for a similar instrument.Thus,the Securities and Exchange Commission (2001)asserts that“the judgment exercised in arriving at fair value by deviating from a market quote may result in different entities measuring the sameﬁnancial instrument at a different(and perhaps materially different)fair value amount”.On the other hand,if an enterprise has access to more than one exit market for aﬁnancial instrument and prices in those markets are different,the JWG states that the instrument’s fair value should be based on the most advantageous market exit price;that is,the highest exit price for an asset and the lowest market exit price for a liability.However,such a criterion would represent the best possible scenario,but not the most probable one.In other words,it does not have to be the highest price the one an enterprise receives in selling an asset,nor the lowest price the one it pays in being relieved of a liability.Moreover,this approach is inconsistent with the deﬁnition of fair value in the Draft Standard,which is “an estimate of the price an enterprise would have received if it had sold an asset or paid if it had been relieved of a liability on the measurement date in an arm’s length exchange motivated by normal business considerations”(emphasis added).This is particularly true172F.G.Hern´a ndez Hern´a ndez/Accounting Forum28(2004)167–179in circumstances where the most advantageous price cannot be realized,or where the depth and liquidity of a market is not sufﬁcient for theﬁnancial instrument.At the same time, this criterion would mean that one entity could report an asset at a different value than the related liability is recorded on the books of another entity.The Draft Standard also prescribes that in the circumstance that an enterprise cannot estimate the fair value of aﬁnancial instrument by using the observable market exit prices of identical or similarﬁnancial instruments,it should estimate that fair value by using a valuation technique.However,the Draft Standard does not provide guidance on how to choose between different types of valuation techniques,nor how to determine the appropriate inputs for such models.Since the use of estimation techniques is intrinsically subjective, it may impair comparability between enterprises,that is,it may produce results that are not comparable from one company to another.Furthermore,userﬁnd information relevant only if they consider it to be reliable,so if determining market exit prices involves highly subjective assumptions,the reliability and the relevance of theﬁnancial statements will be substantially reduced.As the Federal Reserve Board(2001)afﬁrms“the subjectivity now inherent in estimating the fair values of illiquidﬁnancial instruments could diminish reliability inﬁnancial reporting to such an extent as to vitiate the asserted relevance of fair value”.Likewise,the American Institute of Certiﬁed Public Accountants(AICPA, 2001)considers that“using fair value reporting is only as useful as the reliability of the valuation techniques used”.At the same time,the AICPA(2001)admits that“even though sophisticated valuation models continue to be developed,judgment is a critical part of the valuation process;competent persons will arrive at different estimates of fair value for identical instruments”.Schipper and Vincent(2003)consider two approaches to increasing comparability.One approach is to provide detailed rules:the likelihood that estimates based on managements judgments will differ is reduced if judgment is eliminated.A second approach is to provide concepts-based standards whose intent is clearly stated,along with implementation guid-ance.Similarly,the Securities and Exchange Commission(2001)believes it is important for the profession to complete guidance in a timely fashion that would ensure that fair value measurements are reliable,so“standards setters need to provide more detailed,‘how-to’accounting,valuation,and auditing guidance”.The need for detailed guidance has been also recognized,among others,by the Fédéra-tion des Experts Comptables Européens(FEE,2001),the European Commission(2001), Khurana and Kim(2003)and Ryan et al.(2002b).As stated in Schipper(2003),to the extent detailed guidance provides preparers and auditors with a common knowledge base and a common set of assumptions,the incidence of differences in measurements should be reduced.Hence,a“likely beneﬁt of detailed guidance is increased veriﬁability”.The JWG notes that present value concepts are central to the development of techniques for estimating the fair value ofﬁnancial instruments because the market exit price of a ﬁnancial instrument represents market participants’collective estimate of the present value of its expected cashﬂows.In this regard,all present value calculations are based in a set of expected cashﬂows and in an appropriate discount rate.The expected cashﬂows for aﬁnancial instrument include those that are directly related to the contractual rights and obligations that constitute theﬁnancial instrument.Nonetheless,in most of cases the cashﬂows used in a present value measurement are estimates,rather than known amounts,F.G.Hern´a ndez Hern´a ndez/Accounting Forum28(2004)167–179173 especially when the periodic amounts to pay(or to receive)are based on aﬂoating interest rate.On the other hand,the appropriate interest rate may be difﬁcult to determine,and the selection of the appropriate risk premium can be complex and time-consuming.Whereas an enterprise would be able to estimate the expected cashﬂows from aﬁnancial instrument, the appropriate risk premium consistent with fair value may be difﬁcult to determine. The use of entity’s own assumptions about expected cashﬂows and the appropriate interest rate can have as a result that different entities determine a different fair value for an identicalﬁnancial instrument.In this way,entities holding identicalﬁnancial instruments can appear very different depending on the assumptions they use for measuring thoseﬁnancial instruments.Furthermore,estimating future cashﬂows and applying a discount rate to obtain the fair values allow managers who want to manipulate net income the opportunity to make reasonable assumptions that would give them the gains they want to record(Benston &Hartgraves,2002).Consequently,creating accounting valuations based on managers’estimates of future cashﬂows is a serious error that may prove fatal(Watts,2003).One possible solution to this difﬁculty could be the use of the same discount rate for all non-tradedﬁnancial instruments.That is to say,it could be used the risk-free rate of interest to discount the cashﬂows of theﬁnancial instruments.In doing so,for instruments without observable market prices,values would be corrected forﬂuctuations in the levels of market interest rates(Berger,King,&O’Brien,1991).However the JWG provides an exemption to the fair value measurement:certain equity instruments for which there is no observable market price.If an enterprise determines that it is not practicable to make a reliable estimate of the fair value of such an equity investment in another enterprise,the Draft Standard states that the enterprise should report theﬁnancial instrument at its carrying amount.In spite of the fact that the Draft Standard excludes certain private equity instruments from the fair value measurement,the JWG deﬁnes an equity instrument as aﬁnancial instrument that represents a residual interest in the assets of an enterprise after deducting all its liabilities.Consequently,the deﬁnition of an equity instrument itself provides a way to determine the fair value of such aﬁnancial instrument.In this regard,the fair value of the mentioned equity instruments can be estimated by dividing the total amount of Shareholder’s equity(that is,the assets of the enterprise after deducting all its liabilities)by the number of ordinary shares in issue at the balance sheet date.That isFair value per share=shareholder’s equity number of ordinary sharesIn this way,it would be possible to estimate a theoretical value for private equity instruments by using the data in the balance sheet in every reporting period.5.The valuation ofﬁnancial liabilitiesAs far asﬁnancial liabilities are concerned,the Draft Standard states that the estimated market exit price of aﬁnancial liability should reﬂect the effects of the same market factors as the price of aﬁnancial asset,including the credit risk inherent in the liability.However,174F.G.Hern´a ndez Hern´a ndez/Accounting Forum28(2004)167–179there is a problem with this approach.For example,for corporate debt,the JWG notes that if an enterprise’s credit risk worsens,the fair value of its liabilities declines and the enterprise records a gain.This gain would represent the amount of wealth transferred from creditors to equity holders.In this regard,Barth and Landsman(1995)state that the value of the debt equals the discounted value of the cashﬂows the issuer contractually promises the debtholder,and the discount rate depends on the riskiness of the issuer.Therefore,they afﬁrm that,as theﬁrm becomes less likely to honor its obligation,the debt becomes riskier, the appropriate discount rate becomes higher,and the value of the debt decreases if the contractual interest rate is not adjusted to reﬂect the debt’s riskiness.As Lipe(2002)demonstrates,the writing down of debt and recording the corresponding gain creates a positive signal for investors,creditors,and other users ofﬁnancial statements. In addition,even though the enterprise’sﬁnancial condition has worsened,the enterprise has to pay the same amount to the creditors.In other words,the enterprise is still under the obligation to reimburse the nominal value of its debt,so there would be no reason to record a gain.Moreover,if the enterprise needs to raise new funds,it would have to pay a higher rate of interest.The reason for the increase in the interest payments is that,since there is a deterioration of the enterprise’sﬁnancial condition,it has to pay a greater risk premium to the new lenders or debtholders.Although it could be argued that the enterprise could realize the corresponding gain by repurchasing its debt at the new lower fair value,in the case of deterioration of the enterprise’s own credit risk the repurchase of the enterprise’s outstanding debt would require new funds at an increased cost.In addition,the changes in the credit risk of an entity are recognized in the fair value of its liabilities,whereas the internally generated goodwill of an entity,or changes in its value,is not shown in an entity’s accounts.6.Reporting fair value changesUnder the Draft Standard,all gains and losses arising from changes in the fair value ofﬁnancial assets andﬁnancial liabilities are income and must be recognized as income immediately when they arise.Nonetheless,this accounting treatment for changes in the fair value ofﬁnancial instruments could give rise to serious problems.As stated in the Draft Standard,the economic concept of income is founded on the maintenance of an enterprise’s capital.In this sense,income is deﬁned as the amount that can be distributed to equity owners of an enterprise while maintaining its capital,after adjustment for owners’contributions and withdrawals.However,gains arising from changes in the fair value ofﬁnancial instruments could be distributed to shareholders,so there could be a reduction in net worth of theﬁrm if theﬁnancial instruments decline in value in a later period to that of the payment of the dividend.For example,assume that an enterprise records an unrealized gain of$2000arising from the increase in the fair value of aﬁnancial asset.The enterprise decides to distribute the entire gain to the shareholder,so they receive a dividend of$2000.Assume that in the next period the fair value of theﬁnancial asset decreases by$1000.In these circumstances, the enterprise’s capital would have,caeteris paribus,diminished by$1000.A way to avoid such a situation could be to preclude that increases in value are distributed.In other words, the changes in fair value ofﬁnancial instruments could be retained in the company as a part of equity,unless they had been realized through use or sale.In this sense,it should beF.G.Hern´a ndez Hern´a ndez/Accounting Forum28(2004)167–179175 considered to use other comprehensive income(OCI)for reporting the changes in the fair value ofﬁnancial instruments.Although the information about fair value ofﬁnancial instruments may be useful for investors and users ofﬁnancial information to make their own decisions,recognizing all the changes in fair values immediately in earnings would not be better than including such gains and losses in other comprehensive income.Therefore,changes in fair values could be recognized as a component of comprehensive income and reported in statements of income orﬁnancial performance.The AICPA(2001)also advocates the recognition of the changes in the fair value ofﬁnancial instruments using other comprehensive income.On the other hand,funding non-ﬁnancial assets withﬁnancial liabilities might result in increased volatility of reported earnings.This volatility in earnings may give an inaccurate picture of the enterprise’sﬁnancial position and may be a misleading indicator of its true ﬁnancial performance.The income volatility results from fair valuingﬁnancial liabilities while non-ﬁnancial assets funded with such liabilities continue to be carried on an historical cost basis.The use of other comprehensive income would avoid such potential earnings volatility.Moreover,Bodurtha and Thornton(2002)hold that managers prefer recognize volatility in OCI for two reasons.“First,OCI does not affect earnings per share,a key metric that analysts and investors use to gauge corporate performance.Second,the FASB’s ﬁnancial accounting concepts statements draw a distinction between comprehensive income and earnings”.As stated in Linsmeier et al.(1997)income items that are a result of marking to fair value in the balance sheet should be disclosed separately,so their appropriate classiﬁcation would be within comprehensive income.In this sense,the FASB(1997)divides compre-hensive income into net income(earnings)and other comprehensive income,and deﬁnes other comprehensive income as“revenues,expenses,gains,and losses that under generally accepted accounting principles are included in comprehensive income but excluded from net income”.Finally,the JWG considers that gains and losses arising in translatingﬁnancial instru-ments from functional currencies to the reporting currency must be recognized outside the income statement in accordance with existing standards of accounting for foreign entities. Thus,the Draft Standards stipulates that such an exclusion is premised on the assumption that an enterprise is exposed to foreign currency risk in respect of changes in exchange rates with the functional currencies of the foreign operations,rather than with the reporting currency of the enterprise.However,assume that the enterprise designates a derivative as hedging the foreign currency exposure.Under the Draft Standard,the changes in the fair value of the derivative should be recognized in earnings,whereas the offsetting gain or loss on the hedged item is recorded outside the income statement.In such a case,the offsetting effects of the hedging relationship would be not properly reﬂect in theﬁnancial statements, so this would produce a false volatility in earnings as well as in equity.7.Hedge accountingEnterprises have exposure toﬂuctuations in all kinds ofﬁnancial prices,including foreign exchange rates,interest rates,commodity prices and equity prices.Since the effect of such。

自考-高级财务会计-(打印版)第一章外币会计

第一章外币会计第一节外币会计概述一、外币与外币业务（一）外币与外汇1、金融上的外币：外国货币，指本国货币以外的其它国家或地区的货币。

会计上的外币=非记账本位币；在会计上，对外币核算有广义的理解。

会计上是以记账货币作为记账本位币，非记账货币就作为外币。

2、外汇是外币资产的总称，是指以外币表示的用于国际结算的支付手段，包括可用于国际支付的特殊债券，其它外币资产，它必须具备三个条件：1、是以外币表示的资产；2、在国内能够得到偿付的债券；3、可以兑换成其它支付手段的外币资产。

（二）记账本位币的选择对于发生多种货币计价核算的会计主体，必然要选择一个统一的成为会计计量基本尺度的记账货币，并以该货币表述和处理经济业务。

我们把这种用于会计记账、作为会计计量基本尺度的货币，称为“记账本位币”。

在我国，通常以人民币作为记账本位币。

1、企业选用记账本位币的选用原则：（1）该货币主要影响商品和劳务的销售价格，通常以该货币进行商品和劳务的计价和结算。

（2）该货币主要影响商品和劳务所需人工、材料和其他费用，通常以该货币进行上述费用的计价和结算；（3）融资活动获得的货币以及保存从经营活动中收取款项所使用的货币。

2、企业境外经营记账本位币的选择（1）境外经营对其所从事的活动是否拥有很强的自主性；（2）境外经营活动中与企业的交易是否在境外经营活动中占有较大比重；（3）境外经营活动产生的现金流量是否直接影响企业的现金流量、是否可以随时汇回；（4）境外经营活动产生的现金流量是否足以偿还其现有债务和可预期的债务。

3、记账本位币的变更（1）企业记账本位币一经确定，不得随意变更，除非企业经营所处的主要经济环境发生重大变化。

（2）企业因经营所处的主要经济环境发生重大变化，确需变更记账本位币的，应当采用变更当日的即期汇率将所有项目折算为变更后的记账本位币。

（3）记账本位币的变更不会产生汇兑差额。

（三）外币业务1、外币业务包括外币交易和外币报表折算。

国际会计-术语精简

Chapter 1 special termInternational accounting 国际会计Multinational enterprise---MNE 跨国公司International accounting standards 国际会计准则Adequate disclosure 充分披露Foreign currency translation 外币折算International financial statement analysis 国际财务报表分析Managerial planning and control 管理计划与控制International taxation and transferring price 国际税收与转移价格Accounting model 会计模式International capital market 国际资本市场Financial Reporting 财务报告Balance sheet 资产负债表Income statement 收益表Cash flow statement 现金流量表Auditor’s report 审计报告Reconciliations of shareholders’ funds 股东权益调节表Auditing standards 审计准则Marketable securities 可交易证券或短期投资Transactions 交易Chapter 2 Special termPolitical and economic ties 政治与经济联系Balance sheet formats 资产负债表格式Code or Civil Law 成文法Common or Case Law 普通法Tax accounting 税收会计Application of accounting principles 会计原则应用Individualism VS collectivism 个人主义对集体主义Power distance 权力距离Uncertainty avoidance 不确定性的避免Masculinity VS feminism 刚性对柔性Confucian Dynamism 儒家力本轮Long-term orientation 长期趋势Professionalism vs. statutory control 职业化对法规化Uniformity vs. flexibility 统一性对弹性Conservatism vs. optimism 稳健主义对乐观主义Secrecy vs. transparency 保密与透明Macroeconomic pattern 宏观经济模式Microeconomic pattern 微观经济模式Independent discipline approach 独立学科模式The uniform accounting approach 统一会计模式Empirically derived classifications经验性分类Source of finance筹资来源Trial-and-error method试错法Cha. 3 special termsAccounting practice会计实务Anglo-Saxon accounting盎格鲁撒克什会计Conceptual Framework 概念框架Consolidated financial statement合并财务报表Capitalization and amortization资本化和摊销Commercial law 商法Creditor protection债权人保护Conglomerate财团Director’s reportDisclosure 批露Deferred tax 递延税Elements of Financial Statements ofEquity method权益法Financial position 财务状况Intangible asset无形资产Inventory存货Independent audit独立审计Legal reserve法定准备Legal capital法定资本Parent company母公司Post-balance sheet events资产负债表后事项Periodicity 会计分期Proportional consolidation 按比例合并Accounting Regulation and Enforcement会计规范与实施Accounting measurement会计计量Due process procedure允当程序Exposure draft披露草案Chapter 4 special termsAccountability责任Appraisal评估Contingency或有事项Debt restructure 债务重组Distribution of profit 利润分配Directives指令Foundation 基金会或联合会General price level accounting一般价格水平会计Global economy全球经济Going concern 持续经营Harmonization协调Liquidity流动性Low of cost or market 成本与市价孰低法Deferred tax 递延税Chapter 5 Special termCredibility可靠性Comprehensive income综合收益Comparability可比性Corporate governance公司管制Earning forecast收益预测Foreign listed firm外国上市公司Forward-looking information前景信息Funds flow statements 现金流量表Managers’ incentives管理者愿望Material information 重要信息Managerial discretion管理的意愿Voluntary disclosure自愿披露Weighted average 加权平均Working capital营运资本Emerging market economy新兴市场经济Fair value公允价值Reconciliations of shareholders’ funds股东权益调节表Corporate governance公司治理Stock option股票期权Market quality市场质量Chapter 6 special termsAffiliate 附属公司Attribute 计量属性Current noncurrent method 流动非流动法Deferral 递延Depreciation expense 折旧费用Foreign currency translation 外币折算Foreign currency transaction 外币交易Foreign exchange rate 外汇汇率Forward market 远期市场Forward exchange contract 远期合约Foreign operation 外国经营Gains and losses 利得和损失Hedging strategy 套期策略Historical rate 历史汇率Home currency 本国货币Hyperinflation 恶性通货膨胀Restatement 重新表述Remeasurement 重新计量Replacement cost 重置成本Hedge accounting套期会计Chapter 8 special termAdvisory council咨询委员会Approach方法Applicability适应性Capitalization资本化Commentator评论家Comparability 可比性High-quality standard高质量准则Industrialized country工业化国家Interim report中期报告Internationalization国际化Impairment损坏Interpretation Committee解释委员会Option plan期权计划Political agreement政治协定Post balance sheet events资产负债表后事项Provision条款Related party关联方Replacement cost重置成本Restructure重构Securities证券Segment report分部报告Social security社会保障Convergence趋同Chapter 9Accounting analysis会计分析Asset turnover资产周转率Business analysis framework商业分析框架Current ratio流动比率Current cash debt ratio现金比率Deferred tax递延税Dividend股利Earning per share 每股收益Footnote脚注Forecasting预测Gross margin毛利Merger and acquisition analysis兼并与收购分析Market hypothesis市场假设Payout ratio股利率P/E ratio市盈率Pension抚恤金Prospective analysis前景分析Profitability盈利能力Quick ratio速动比率Financial analyst财务分析师。

ias32 Financial InstrumentsPresentation

IAS32 International Accounting Standard32Financial Instruments:PresentationIn April2001the International Accounting Standards Board(IASB)adopted IAS32Financial Instruments:Disclosure and Presentation,which had been issued by the International Accounting Standards Committee in2000.IAS32Financial Instruments:Disclosure and Presentation had originally been issued in June1995and had been subsequently amended in 1998and2000.The IASB issued a revised IAS32in December2003as part of its initial agenda of technical projects.This revised IAS32also incorporated the guidance contained in related Interpretations(SIC-5Classification of Financial Instruments-Contingent Settlement Provisions,SIC-16 Share Capital-Reacquired Own Equity Instruments(Treasury Shares)and SIC-17Equity—Costs of an Equity Transaction).It also incorporated guidance previously proposed in draft SIC Interpretation D34Financial Instruments—Instruments or Rights Redeemable by the Holder.In December2005the IASB amended IAS32by relocating all disclosures relating to financial instruments to IFRS7Financial Instruments:Disclosures.Consequently,the title of IAS32changed to Financial Instruments:Presentation.In February2008IAS32was changed to require some puttable financial instruments and obligations arising on liquidation to be classified as equity.In October2009the IASB amended IAS32to require some rights that are denominated in a foreign currency to be classified as equity.The application guidance in IAS32was amended in December2011to address some inconsistencies relating to the offsetting financial assets and financial liabilities criteria.Other Standards have made minor consequential amendments to IAS32.They include Improvements to IFRSs(issued May2010),IFRS10Consolidated Financial Statements(issued May 2011),IFRS11Joint Arrangements(issued May2011),IFRS13Fair Value Measurement(issued May 2011),Presentation of Items of Other Comprehensive Income(Amendments to IAS1)(issued June 2011),Disclosures—Offsetting Financial Assets and Financial Liabilities(Amendments to IFRS7) (issued December2011),Annual Improvements to IFRSs2009–2011Cycle(issued May2012), Investment Entities(Amendments to IFRS10,IFRS12and IAS27)(issued October2012),IFRS9 Financial Instruments(Hedge Accounting and amendments to IFRS9,IFRS7and IAS39) (issued November2013),IFRS15Revenue from Contracts with Customers(issued May2014)and IFRS9Financial Instruments(issued July2014).஽IFRS Foundation A1083IAS32C ONTENTSfrom paragraph INTRODUCTION IN1 INTERNATIONAL ACCOUNTING STANDARD32FINANCIAL INSTRUMENTS:PRESENTATIONOBJECTIVE2 SCOPE4 DEFINITIONS(SEE ALSO PARAGRAPHS AG3–AG23)11 PRESENTATION15 Liabilities and equity(see also paragraphs AG13–AG145and AG25–AG29A)15 Compound financial instruments(see also paragraphs AG30–AG35andIllustrative Examples9–12)28 Treasury shares(see also paragraph AG36)33 Interest,dividends,losses and gains(see also paragraph AG37)35 Offsetting a financial asset and a financial liability(see alsoparagraphs AG38A–AG38F and AG39)42 EFFECTIVE DATE AND TRANSITION96 WITHDRAWAL OF OTHER PRONOUNCEMENTS98 APPENDIXAPPLICATION GUIDANCEFOR THE ACCOMPANYING DOCUMENTS LISTED BELOW,SEE PART B OF THIS EDITIONAPPROVAL BY THE BOARD OF IAS32ISSUED IN DECEMBER2003APPROVAL BY THE BOARD OF AMENDMENTS TO IAS32:Puttable Financial Instruments and Obligations Arising on Liquidation(Amendments to IAS32and IAS1)issued in February2008Classification of Rights Issues(Amendments to IAS32)issued in October2009Offsetting Financial Assets and Financial Liabilities(Amendments to IAS32)issued in December2011BASIS FOR CONCLUSIONSDISSENTING OPINIONSILLUSTRATIVE EXAMPLESA1084஽IFRS FoundationIAS32 International Accounting Standard32Financial Instruments:Presentation(IAS32)is set outin paragraphs2–100and the Appendix.All the paragraphs have equal authority but retain the IASC format of the Standard when it was adopted by the IASB.IAS32should be read in the context of its objective and the Basis for Conclusions,the Preface to International Financial Reporting Standards and the Conceptual Framework for Financial Reporting.IAS8Accounting Policies,Changes in Accounting Estimates and Errors provides a basis for selecting and applying accounting policies in the absence of explicit guidance.஽IFRS Foundation A1085IAS32IntroductionReasons for revising IAS32in December2003IN1International Accounting Standard32Financial Instruments:Disclosure and Presentation(IAS32)1replaces IAS32Financial Instruments:Disclosure and Presentation(revised in2000),and should be applied for annual periods beginning on or after1January2005.Earlier application is permitted.The Standard also replaces thefollowing Interpretations and draft Interpretation:●SIC-5Classification of Financial Instruments—Contingent Settlement Provisions;●SIC-16Share Capital—Reacquired Own Equity Instruments(Treasury Shares);●SIC-17Equity—Costs of an Equity Transaction;and●draft SIC-D34Financial Instruments—Instruments or Rights Redeemable by theHolder.IN2The International Accounting Standards Board developed this revised IAS32as part of its project to improve IAS32and IAS39Financial Instruments:Recognitionand Measurement.The objective of the project was to reduce complexity byclarifying and adding guidance,eliminating internal inconsistencies andincorporating into the Standards elements of Standing InterpretationsCommittee(SIC)Interpretations and IAS39implementation guidance publishedby the Implementation Guidance Committee(IGC).IN3For IAS32,the Board’s main objective was a limited revision to provide additional guidance on selected matters—such as the measurement of thecomponents of a compound financial instrument on initial recognition,and theclassification of derivatives based on an entity’s own shares—and to locate alldisclosures relating to financial instruments in one Standard.2The Board did notreconsider the fundamental approach to the presentation and disclosure offinancial instruments contained in IAS32.The main changesIN4The main changes from the previous version of IAS32are described below.ScopeIN5The scope of IAS32has,where appropriate,been conformed to the scope of IAS39.1This Introduction refers to IAS32as revised in December2003.In August2005the IASB amended IAS32by relocating all disclosures relating to financial instruments to IFRS7Financial Instruments: Disclosures.In February2008the IASB amended IAS32by requiring some puttable financial instruments and some financial instruments that impose on the entity an obligation to deliver to another party a pro rata share of the net assets of the entity only on liquidation to be classified as equity.2In August2005the IASB relocated all disclosures relating to financial instruments to IFRS7Financial Instruments:Disclosures.A1086஽IFRS FoundationIAS32IN5A In November2013the scope of IAS32was conformed to the scope of IAS393as amended in November2013regarding the accounting for some executorycontracts(which was changed as a result of replacing the hedge accountingrequirements in IAS39).PrincipleIN6In summary,when an issuer determines whether a financial instrument is a financial liability or an equity instrument,the instrument is an equityinstrument if,and only if,both conditions(a)and(b)are met.(a)The instrument includes no contractual obligation:(i)to deliver cash or another financial asset to another entity;or(ii)to exchange financial assets or financial liabilities with anotherentity under conditions that are potentially unfavourable to theissuer.(b)If the instrument will or may be settled in the issuer’s own equityinstruments,it is:(i)a non-derivative that includes no contractual obligation for theissuer to deliver a variable number of its own equity instruments;or(ii)a derivative that will be settled by the issuer exchanging a fixedamount of cash or another financial asset for a fixed number ofits own equity instruments.For this purpose,the issuer’s ownequity instruments do not include instruments that arethemselves contracts for the future receipt or delivery of theissuer’s own equity instruments.IN7In addition,when an issuer has an obligation to purchase its own shares for cash or another financial asset,there is a liability for the amount that the issuer isobliged to pay.IN8The definitions of a financial asset and a financial liability,and the description of an equity instrument,are amended consistently with this principle.Classification of contracts settled in an entity’s ownequity instrumentsIN9The classification of derivative and non-derivative contracts indexed to,or settled in,an entity’s own equity instruments has been clarified consistentlywith the principle in paragraph IN6above.In particular,when an entity uses itsown equity instruments‘as currency’in a contract to receive or deliver avariable number of shares whose value equals a fixed amount or an amountbased on changes in an underlying variable(eg a commodity price),the contractis not an equity instrument,but is a financial asset or a financial liability.3In July2014the Board relocated the scope of IAS39to IFRS9.஽IFRS Foundation A1087IAS32Puttable instrumentsIN10IAS32incorporates the guidance previously proposed in draft SIC Interpretation34Financial Instruments—Instruments or Rights Redeemable by theHolder.Consequently,a financial instrument that gives the holder the right toput the instrument back to the issuer for cash or another financial asset(a‘puttable instrument’)is a financial liability of the issuer.In response tocomments received on the Exposure Draft,the Standard provides additionalguidance and illustrative examples for entities that,because of thisrequirement,have no equity or whose share capital is not equity as defined inIAS32.Contingent settlement provisionsIN11IAS32incorporates the conclusion previously in SIC-5Classification of Financial Instruments—Contingent Settlement Provisions that a financial instrument is afinancial liability when the manner of settlement depends on the occurrence ornon-occurrence of uncertain future events or on the outcome of uncertaincircumstances that are beyond the control of both the issuer and the holder.Contingent settlement provisions are ignored when they apply only in the eventof liquidation of the issuer or are not genuine.Settlement optionsIN12Under IAS32,a derivative financial instrument is a financial asset or a financial liability when it gives one of the parties to it a choice of how it is settled unlessall of the settlement alternatives would result in it being an equity instrument.Measurement of the components of a compoundfinancial instrument on initial recognitionIN13The revisions eliminate the option previously in IAS32to measure the liability component of a compound financial instrument on initial recognition either asa residual amount after separating the equity component,or by using arelative-fair-value method.Thus,any asset and liability components areseparated first and the residual is the amount of any equity component.Theserequirements for separating the liability and equity components of a compoundfinancial instrument are conformed to both the definition of an equityinstrument as a residual and the measurement requirements in IFRS9.Treasury sharesIN14IAS32incorporates the conclusion previously in SIC-16Share Capital—Reacquired Own Equity Instruments(Treasury Shares)that the acquisition or subsequent resaleby an entity of its own equity instruments does not result in a gain or loss for theentity.Rather it represents a transfer between those holders of equityinstruments who have given up their equity interest and those who continue tohold an equity instrument.A1088஽IFRS FoundationIAS32Interest,dividends,losses and gainsIN15IAS32incorporates the guidance previously in SIC-17Equity—Costs of an Equity Transaction.Transaction costs incurred as a necessary part of completing anequity transaction are accounted for as part of that transaction and are deductedfrom equity.Disclosure[Deleted]IN16–IN19IN19A In August2005the Board revised disclosures about financial instruments and relocated them to IFRS7Financial Instruments:Disclosures.Withdrawal of other pronouncementsIN20As a consequence of the revisions to this Standard,the Board withdrew the three Interpretations and one draft Interpretation of the former StandingInterpretations Committee noted in paragraph IN1.Potential impact of proposals in exposure draftsIN21[Deleted]Reasons for amending IAS32in February2008IN22In February2008the IASB amended IAS32by requiring some financial instruments that meet the definition of a financial liability to be classified asequity.Entities should apply the amendments for annual periods beginning onor after1January2009.Earlier application is permitted.IN23The amendment addresses the classification of some:(a)puttable financial instruments,and(b)instruments,or components of instruments,that impose on the entityan obligation to deliver to another party a pro rata share of the net assetsof the entity only on liquidation.IN24The objective was a short-term,limited scope amendment to improve the financial reporting of particular types of financial instruments that meet thedefinition of a financial liability but represent the residual interest in the netassets of the entity.஽IFRS Foundation A1089IAS32International Accounting Standard32Financial Instruments:PresentationObjective1[Deleted]2The objective of this Standard is to establish principles for presenting financial instruments as liabilities or equity and for offsetting financial assets andfinancial liabilities.It applies to the classification of financial instruments,fromthe perspective of the issuer,into financial assets,financial liabilities and equityinstruments;the classification of related interest,dividends,losses and gains;and the circumstances in which financial assets and financial liabilities shouldbe offset.3The principles in this Standard complement the principles for recognising and measuring financial assets and financial liabilities in IFRS9Financial Instruments,and for disclosing information about them in IFRS7Financial Instruments:Disclosures.Scope4This Standard shall be applied by all entities to all types of financial instruments except:(a)those interests in subsidiaries,associates or joint ventures that areaccounted for in accordance with IFRS10Consolidated FinancialStatements,IAS27Separate Financial Statements or IAS28Investments in Associates and Joint Ventures.However,in somecases,IFRS10,IAS27or IAS28require or permit an entity toaccount for an interest in a subsidiary,associate or joint ventureusing IFRS9;in those cases,entities shall apply the requirementsof this Standard.Entities shall also apply this Standard to allderivatives linked to interests in subsidiaries,associates or jointventures.(b)employers’rights and obligations under employee benefit plans,to which IAS19Employee Benefits applies.(c)[deleted](d)insurance contracts as defined in IFRS4Insurance Contracts.However,this Standard applies to derivatives that are embedded ininsurance contracts if IFRS9requires the entity to account forthem separately.Moreover,an issuer shall apply this Standard tofinancial guarantee contracts if the issuer applies IFRS9inrecognising and measuring the contracts,but shall apply IFRS4ifthe issuer elects,in accordance with paragraph4(d)of IFRS4,toapply IFRS4in recognising and measuring them.A1090஽IFRS FoundationIAS32(e)financial instruments that are within the scope of IFRS4becausethey contain a discretionary participation feature.The issuer ofthese instruments is exempt from applying to these featuresparagraphs15–32and AG25–AG35of this Standard regarding thedistinction between financial liabilities and equity instruments.However,these instruments are subject to all other requirementsof this Standard.Furthermore,this Standard applies to derivativesthat are embedded in these instruments(see IFRS9).(f)financial instruments,contracts and obligations undershare-based payment transactions to which IFRS2Share-basedPayment applies,except for(i)contracts within the scope of paragraphs8–10of thisStandard,to which this Standard applies,(ii)paragraphs33and34of this Standard,which shall beapplied to treasury shares purchased,sold,issued orcancelled in connection with employee share option plans,employee share purchase plans,and all other share-basedpayment arrangements.[Deleted]5–78This Standard shall be applied to those contracts to buy or sell a non-financial item that can be settled net in cash or another financialinstrument,or by exchanging financial instruments,as if the contractswere financial instruments,with the exception of contracts that wereentered into and continue to be held for the purpose of the receipt ordelivery of a non-financial item in accordance with the entity’s expectedpurchase,sale or usage requirements.However,this Standard shall beapplied to those contracts that an entity designates as measured at fairvalue through profit or loss in accordance with paragraph2.5of IFRS9Financial Instruments.9There are various ways in which a contract to buy or sell a non-financial item can be settled net in cash or another financial instrument or by exchangingfinancial instruments.These include:(a)when the terms of the contract permit either party to settle it net in cashor another financial instrument or by exchanging financial instruments;(b)when the ability to settle net in cash or another financial instrument,orby exchanging financial instruments,is not explicit in the terms of thecontract,but the entity has a practice of settling similar contracts net incash or another financial instrument,or by exchanging financialinstruments(whether with the counterparty,by entering into offsettingcontracts or by selling the contract before its exercise or lapse);(c)when,for similar contracts,the entity has a practice of taking delivery ofthe underlying and selling it within a short period after delivery for thepurpose of generating a profit from short-term fluctuations in price ordealer’s margin;and஽IFRS Foundation A1091IAS32(d)when the non-financial item that is the subject of the contract is readilyconvertible to cash.A contract to which(b)or(c)applies is not entered into for the purpose of thereceipt or delivery of the non-financial item in accordance with the entity’sexpected purchase,sale or usage requirements,and,accordingly,is within thescope of this Standard.Other contracts to which paragraph8applies areevaluated to determine whether they were entered into and continue to be heldfor the purpose of the receipt or delivery of the non-financial item in accordancewith the entity’s expected purchase,sale or usage requirement,and accordingly,whether they are within the scope of this Standard.10A written option to buy or sell a non-financial item that can be settled net in cash or another financial instrument,or by exchanging financial instruments,in accordance with paragraph9(a)or(d)is within the scope of this Standard.Such a contract cannot be entered into for the purpose of the receipt or deliveryof the non-financial item in accordance with the entity’s expected purchase,saleor usage requirements.Definitions(see also paragraphs AG3–AG23)11The following terms are used in this Standard with the meanings specified:A financial instrument is any contract that gives rise to a financial assetof one entity and a financial liability or equity instrument of anotherentity.A financial asset is any asset that is:(a)cash;(b)an equity instrument of another entity;(c)a contractual right:(i)to receive cash or another financial asset from anotherentity;or(ii)to exchange financial assets or financial liabilities withanother entity under conditions that are potentiallyfavourable to the entity;or(d)a contract that will or may be settled in the entity’s own equityinstruments and is:(i)a non-derivative for which the entity is or may be obliged toreceive a variable number of the entity’s own equityinstruments;or(ii)a derivative that will or may be settled other than by theexchange of a fixed amount of cash or another financialasset for a fixed number of the entity’s own equityinstruments.For this purpose the entity’s own equityinstruments do not include puttable financial instrumentsclassified as equity instruments in accordance with A1092஽IFRS FoundationIAS32paragraphs16A and16B,instruments that impose on theentity an obligation to deliver to another party a pro ratashare of the net assets of the entity only on liquidation andare classified as equity instruments in accordance withparagraphs16C and16D,or instruments that are contractsfor the future receipt or delivery of the entity’s own equityinstruments.A financial liability is any liability that is:(a)a contractual obligation:(i)to deliver cash or another financial asset to another entity;or(ii)to exchange financial assets or financial liabilities with another entity under conditions that are potentiallyunfavourable to the entity;or(b)a contract that will or may be settled in the entity’s own equityinstruments and is:(i)a non-derivative for which the entity is or may be obliged todeliver a variable number of the entity’s own equityinstruments;or(ii)a derivative that will or may be settled other than by the exchange of a fixed amount of cash or another financialasset for a fixed number of the entity’s own equityinstruments.For this purpose,rights,options or warrantsto acquire a fixed number of the entity’s own equityinstruments for a fixed amount of any currency are equityinstruments if the entity offers the rights,options orwarrants pro rata to all of its existing owners of the sameclass of its own non-derivative equity instruments.Also,forthese purposes the entity’s own equity instruments do notinclude puttable financial instruments that are classified asequity instruments in accordance with paragraphs16A and16B,instruments that impose on the entity an obligation todeliver to another party a pro rata share of the net assets ofthe entity only on liquidation and are classified as equityinstruments in accordance with paragraphs16C and16D,orinstruments that are contracts for the future receipt ordelivery of the entity’s own equity instruments.As an exception,an instrument that meets the definition of a financial liability is classified as an equity instrument if it has all the features and meets the conditions in paragraphs16A and16B or paragraphs16C and16D.An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities.஽IFRS Foundation A1093IAS32Fair value is the price that would be received to sell an asset or paid totransfer a liability in an orderly transaction between market participantsat the measurement date.(See IFRS13Fair Value Measurement.)A puttable instrument is a financial instrument that gives the holder theright to put the instrument back to the issuer for cash or anotherfinancial asset or is automatically put back to the issuer on theoccurrence of an uncertain future event or the death or retirement of theinstrument holder.12The following terms are defined in Appendix A of IFRS9or paragraph9of IAS39 Financial Instruments:Recognition and Measurement and are used in this Standardwith the meaning specified in IAS39and IFRS9.●amortised cost of a financial asset or financial liability●derecognition●derivative●effective interest method●financial guarantee contract●financial liability at fair value through profit or loss●firm commitment●forecast transaction●hedge effectiveness●hedged item●hedging instrument●held for trading●regular way purchase or sale●transaction costs.13In this Standard,‘contract’and‘contractual’refer to an agreement between two or more parties that has clear economic consequences that the parties havelittle,if any,discretion to avoid,usually because the agreement is enforceable bylaw.Contracts,and thus financial instruments,may take a variety of forms andneed not be in writing.14In this Standard,‘entity’includes individuals,partnerships,incorporated bodies, trusts and government agencies.PresentationLiabilities and equity(see also paragraphs AG13–AG14Jand AG25–AG29A)15The issuer of a financial instrument shall classify the instrument,or its component parts,on initial recognition as a financial liability,a financialasset or an equity instrument in accordance with the substance of the A1094஽IFRS FoundationIAS32contractual arrangement and the definitions of a financial liability,afinancial asset and an equity instrument.16When an issuer applies the definitions in paragraph11to determine whether a financial instrument is an equity instrument rather than a financial liability,the instrument is an equity instrument if,and only if,both conditions(a)and(b)below are met.(a)The instrument includes no contractual obligation:(i)to deliver cash or another financial asset to another entity;or(ii)to exchange financial assets or financial liabilities with anotherentity under conditions that are potentially unfavourable to theissuer.(b)If the instrument will or may be settled in the issuer’s own equityinstruments,it is:(i)a non-derivative that includes no contractual obligation for theissuer to deliver a variable number of its own equity instruments;or(ii)a derivative that will be settled only by the issuer exchanging afixed amount of cash or another financial asset for a fixednumber of its own equity instruments.For this purpose,rights,options or warrants to acquire a fixed number of the entity’s ownequity instruments for a fixed amount of any currency are equityinstruments if the entity offers the rights,options or warrantspro rata to all of its existing owners of the same class of its ownnon-derivative equity instruments.Also,for these purposes theissuer’s own equity instruments do not include instruments thathave all the features and meet the conditions described inparagraphs16A and16B or paragraphs16C and16D,orinstruments that are contracts for the future receipt or deliveryof the issuer’s own equity instruments.A contractual obligation,including one arising from a derivative financialinstrument,that will or may result in the future receipt or delivery of theissuer’s own equity instruments,but does not meet conditions(a)and(b)above,is not an equity instrument.As an exception,an instrument that meets thedefinition of a financial liability is classified as an equity instrument if it has allthe features and meets the conditions in paragraphs16A and16B or paragraphs16C and16D.Puttable instruments16A A puttable financial instrument includes a contractual obligation for the issuer to repurchase or redeem that instrument for cash or another financial asset onexercise of the put.As an exception to the definition of a financial liability,aninstrument that includes such an obligation is classified as an equity instrumentif it has all the following features:஽IFRS Foundation A1095。

IFRS9FinancialInstruments国际财务报告准则9金融工具

2012IFRS 9 Financial Instrumentsas issued at 1 January 2012. Includes IFRSs with an effective date after 1 January 2012 but not the IFRSs they will replace.This extract has been prepared by IFRS Foundation staff and has not been approved by the IASB. For the requirements reference must be made to International Financial Reporting Standards.IFRS 9 specifies how an entity should classify and measure financial assets and financial liabilities, including some hybrid contracts. It is the first part of Phase 1 of the Board’s project to replace IAS 39. The main phases are: Phase 1: Classification and measurement. Phase 2: Impairment methodology. Phase 3: Hedge accounting. The Board aims to have replaced IAS 39 in its entirety. Therefore the objective of this IFRS is to establish principles for the financial reporting of financial assets and financial liabilities that will present relevant and useful information to users of financial statements for their assessment of the amounts, timing and uncertainty of an entity’s future cash flows.Recognition and initial measurement: An entity shall recognise a financial asset or a financial liability in its statement of financial position when, and only when, the entity becomes party to the contractual provisions of the instrument. At initial recognition, an entity shall measure a financial asset or financial liability at its fair value plus or minus, in the case of a financial asset or financial liability not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition or issue of the financial asset or financial liability.Financial assets – classification, reclassification and subsequent measurementWhen an entity first recognises a financial asset, it shall classify it based on the entity’s business model for managing the financial assets and the contractual cash flow characteristics of the financial asset.A financial asset shall be measured at amortised cost if both of the following conditions are met:(a) The asset is held within a business model whose objective is to hold assets in order to collect contractual cash flows.(b) The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.However, an entity may, at initial recognition, irrevocably designate a financial asset as measured at fair value through profit or loss if doing so eliminates or significantly reduces a measurement or recognition inconsistency (sometimes referred to as an ‘accounting mismatch’) that would otherwise arise from measuring assets or liabilities or recognising the gains and losses on them on different bases.A financial asset shall be measured at fair value unless it is measured at amortised cost.When, and only when, an entity changes its business model for managing financial assets it shall reclassify all affected financial assets.Financial liabilities – classification, reclassification and subsequent measurementAn entity shall classify all financial liabilities as subsequently measured at amortised cost using the effective interest method, except for:(a) financial liabilities at fair value through profit or loss. Such liabilities, including derivatives that are liabilities, shall be subsequently measured at fair value.(b) financial liabilities that arise when a transfer of a financial asset does not qualify for derecognition or when the continuing involvement approach applies.(c) financial guarantee contracts as defined in Appendix A. After initial recognition, an issuer of such a contract shall (unless paragraph 4.2.1(a) or (b) applies) subsequently measure it at the higher of:(i) the amount determined in accordance with IAS 37 Provisions, Contingent Liabilities and ContingentAssets and(ii) the amount initially recognised less, when appropriate, cumulative amortisation recognised in accordance with IAS 18 Revenue.(d) commitments to provide a loan at a below-market interest rate. After initial recognition, an issuer of such a commitment shall (unless paragraph 4.2.1(a) applies) subsequently measure it at the higher of:(i) the amount determined in accordance with IAS 37 and(ii) the amount initially recognised less, when appropriate, cumulative amortisation recognised in accordance with IAS 18.However, an entity may, at initial recognition, irrevocably designate a financial liability as measured at fair value through profit or loss when permitted or when doing so results in more relevant information.An entity shall not reclassify any financial liability.。

企业会计准则第号——合并财务报表-中英对照

企业会计准则第号——合并财务报表-中英对照————————————————————————————————作者：————————————————————————————————日期：Accounting Standard for Business Enterprises No. 33 - Consolidated financialstatements企业会计准则第33号——合并财务报表Chapter I General Provisions第一章总则Article 1: These Standards are formulated in accordance with the Accounting Standards for Enterprises - Basic Standards for the purpose of regulating the preparation and presentation of consolidated financial statements.第一条为了规范合并财务报表的编制和列报，根据《企业会计准则——基本准则》，制定本准则。

Article 2: ‘consolidated financial statements’ are structural reports about the financial statu s, business performances and cash flows of the enterprise group formulated by parent companies and subsidiary companies.第二条合并财务报表，是指反映母公司和其全部子公司形成的企业集团整体财务状况、经营成果和现金流量的财务报表。

Parent company means the company has one or more subsidiary companies (or main body).母公司，是指有一个或一个以上子公司的企业（或主体，下同）。

会计英文版十四单元答案

Solutions Manualto accompanyPrinciples of Accounting2nd editionbyJerry Weygandt, Keryn Chalmers, Lorena Mitrione Michelle Fyfe, Susana Yuen, Donald Kieso, Paul KimmelChapter 14Companies: share capitalJohn Wiley & Sons Australia, LtdCHAPTER 14Companies: Share Capital ASSIGNMENT CLASSIFICATION TABLELearning Objectives QuestionsBriefExercises Exercises Problems1. Identify the majorcharacteristics of acompany.1, 2, 3, 4, 9 12. Differentiate betweenshare capital andretained earnings. 5, 6, 8, 10,11, 14, 152 3A, 4A3. Record the issue ofordinary shares. 7, 11, 12,133, 4, 5, 6 1, 2, 3, 4,5, 61A, 2A, 3A,4A, 6A, 7A4. Explain the accountingfor share buy-backs.15, 16 7 2, 4, 6, 8 6A5. Differentiate preferenceshares from ordinaryshares. 17 4, 8 3, 5, 8 1A, 4A, 6A,7A6. Prepare a shareholder s’equity section. 20 9 2, 7, 8, 9,10, 111A, 2A, 3A,4A, 5A, 6A,7A7. Compute book valueper share.18, 19 10 12, 13ASSIGNMENT CHARACTERISTICS TABLEProblemNumber Description DifficultyLevelTimeAllotted (min.)1 Journalise shares transactions, post, and prepare sharecapital section.Simple 30-402 Journalise share transactions, and prepareshareholder s’ equity section.Moderate 30-403 Journalise and post transactions, and prepare theshareholder s’ equity section.Moderate 30-404 Journalise and post ordinary and preference sharetransactions, and prepare shareholder s’ equity section.Moderate 30-405 Prepare shareholder s’ equity section.Simple 20-306 Prepare entries for share transactions and prepareshareholder s’ e quity section.Moderate 20-307 Journalise share transactions and prepare share capitalsection.Moderate 40-50BLOOM’S TAXONOMY TABLECorrelation Chart between Bloom’s Taxonomy, Learning Objectives and End-of-Chapter Exercisesand ProblemsANSWERS TO QUESTIONS1.(a) Separate legal entity. A company is separate and distinct from its owners and it acts inits own name rather than in the name of its shareholders. In contrast to a partnership, the acts of the owners (shareholders) do not bind the company unless the owners are duly appointed agents of the company.(b) Limited liability of shareholders. Because of its separate legal existence, creditors of acompany ordinarily have recourse only to company assets to satisfy their claims. Thus,the liability of shareholders is normally limited to their investment in the company.(c) Transferable ownership rights. Ownership of a company is held in shares. The sharesare transferable units. Shareholders may dispose of part or all of their interest by simplyselling their shares. The transfer of ownership to another party is entirely at thediscretion of the shareholder.2.(a) The separation of ownership and management is an advantage to a company becauseit can hire professional managers to run the company. It is also a disadvantage to a company because it prevents owners from having an active role in directly managingthe company.(b) Two other disadvantages of a company form of ownership are government regulationsand company taxation. A company is subject to numerous regulations. Companies must pay income taxes. These taxes are substantial. Publicly owned companies are alsorequired to make adequate disclosures of their financial affairs.3.(a) (1) The articles of incorporation is a document that creates a company.(2) The company constitution is the internal rules and procedures for conducting theaffairs of a company. They also indicate the powers of the shareholders, directorsand senior executives.(3) Preliminary expenses are costs incurred in the formation of a company. Thesecosts include legal fees and promotional expenditure involved in the organisationof the business. Preliminary costs are capitalised as it would be expected thatthese costs will provide future economic benefits to the company.4.In the absence of restrictive provisions, the basic ownership rights of ordinary shareholdersare the rights to:(1) vote in the election of a board of directors and in company actions that requireshareholder s’ approval.(2) share in company profits through the receipt of dividends.(3) keep the same percentage ownership when new shares of ordinary shares are issued(the preemptive right).(4) share in assets upon liquidation.5.(a) The two principal components of shareholder s’ equity for a company are share capital(the investment of cash and other assets in the company by shareholders in exchange for shares) and retained earnings. The principal source of retained earnings is profit.(b) Share capital is the term used to describe the total amount paid-up on shares. Sharecapital may result through the issue of ordinary shares and/or preference shares.6.Each of the three basic financial statements for a company differs from those for aproprietorship. The income statement for a company will have income tax expense. For a company, a retained earnings statement is prepared to show the changes in retained earnings during the period. In the statement of financial position, the owner’s equity section is called the shareholder s’ e quity section.7.Shareholders’ EquityShare Capital100 000 ordinary shares, fully paid ............................................................... 500 00050 000 ordinary shares, paid to $4 ................................................................ 200 000Total Share Capital .............................................................................. 700 000 Retained Earnings ........................................................................................ 44 000 Total Shareholders’ Equity......................................................................... $744 000 8.Par value is an arbitrary amount assigned to each share. The share issue price is the pricerequired to be paid in order to purchase the shares. Countries like Australia and New Zealand have removed the use of par value because par value is an immaterial value in relation to the issue price with no relationship with the market value of the share issued.9.Among the factors which influence the market value of shares are the company’s profits andanticipated future earnings, its expected dividend rate per share, its current financial position, the current state of the economy, and the current state of the share markets.10.When a company issue shares, cash is received by the company and the share capitalaccount is credited with the amount of shares issued, therefore increasing share capital.This is very different to stock exchange transactions where one shareholder sells some or all of their shares to another shareholder or investor. These type of transactions, known as stock exchange transactions, are not recorded by the company and therefore share capital remains the same. In these transactions, the company simply records the change in ownership of those shares often via the share registry service.11.When the board of directors of Unforgettable Houseboats Ltd makes the call theshareholders are obliged to pay the amount called. When shares are allotted, a legally binding contract is created, therefore shareholders are required to pay the amount owing as and when required. The amount per share required to be paid is $2 per share.12. If a shareholder fails to pay a call on a share the company can do one of two things:(a) take legal action against the shareholder to ensure the money is paid; or,(b) forfeit the shares. If the shares are forfeited, the shareholder who owned the sharesloses any amount paid to the company and is no longer a shareholder of the company.13.When shares are issued for services or non-cash assets, the cost should be measured at thefair value of the consideration given up (in this case, the shares). The fair value of the shares is objectively determinable than that of the land, since the shares are actively traded on the stock exchange. Therefore, the land should be recorded at $90 000.14. A company may repurchase its own shares for one of the following reasons:1. The company has surplus cash, and it does not have or is not aware of a sufficientprofitable investment opportunity.2. Management may want to avoid a takeover of the company by an outside party.3. The buy back of shares may support the shares’ market price by decreasing thenumber of shares available.4. Management may be making a financing decision, that is, it may wish to replace someof the company’s share capital with borrowed funds.15.When a company buys back its shares, the cost of the share buy-back is debited againstshareholders’ equity, normally to the sha re capital account. Cash is credited at the cost of the buy-back. Thus, this transaction: (a) has no effect on profit, (b) decreases total assets,(c) reduces share capital, and (d) decreases total shareholder s’ equity.16.Under the accounting standards, namely IAS 1 101 and AASB 101Presentation of FinancialStatements,when a company buys back its shares it requires the following disclosures:∙number of shares bought back∙price paid per share bought back∙amount debited to the shareholders’ equity accounts.The disclosure would normally be made in the notes to the financial statements.17.(a) Ordinary shares and preference shares both represent ownership of the company.Ordinary shares signifies the basic residual ownership; preference shares is ownershipwith certain privileges or preferences. Preference shareholders typically have apreference as to dividends and as to assets in the event of liquidation. However,preference shareholders generally do not have voting rights.(b) Some preference shares possess the additional features of being cumulative. Ifpreference shares are cumulative, the preference shareholders must be paid bothcurrent-year dividends and unpaid prior year dividends before ordinary shareholdersreceive any dividends.(c) Dividends in arrears are disclosed in the notes to the financial statements.18.The formula for computing book value per share when a company has only ordinary sharesissued is:TotalShareholder s’Equity ÷Number ofOrdinary SharesIssued=BookValueper ShareBook value per share represents the equity an ordinary shareholder has in the net assets of the company from owning one share.19.Book value per share represents the equity an ordinary shareholder has in the net assets ofthe company from owning one share. Market value is generally only remotely related to book value. A shares market value will reflect many factors, including the company’s profits and anticipated future earnings, its expected dividend rate per share, its current financial position, the current state of the economy, and the current state of the securities or share markets.20.The answers are summarised in the table below:Account Classification(a)(b)(c)(d)(e)(f) Ordinary sharesShare CapitalRetained EarningsPreference SharesOrdinary Share CapitalOrdinary Share CapitalShare capital — ordinary sharesShare capitalRetained earningsShare Capital — Preference SharesShare capital — Ordinary SharesShare capital — Ordinary Shares partly paidSOLUTIONS TO BRIEF EXERCISES BRIEF EXERCISE 14-1The advantages and disadvantages of a company are as follows:Advantages DisadvantagesSeparate legal existenceLimited liability of shareholders Transferable ownership rights Ability to acquire capital Continuous lifeNo mutual agency for shareholders Professional managers Separation of ownership and management Government regulationsCompany taxationBRIEF EXERCISE 14-230 June Profit and Loss Summary ............................................................ 450 000Retained Earnings ............................................................. 450 000BRIEF EXERCISE 14-310 May Cash (1000 × $10) ...................................................................... 10 000Ordinary share capital (1000 × $10)................................... 10 000BRIEF EXERCISE 14-4Cash (10 000 × $6) ................................................................................... 60 000 Ordinary Share Capital .................................................................... 60 000 Cash (3000 × $12) .................................................................................... 36 000 Preference Share Capital ................................................................ 36 000BRIEF EXERCISE 14-520 June Cash (Trust Account) .................................................................. 12 000Application ......................................................................... 12 000(Record of receipt of application monies)25 June Application (3000 × $4) ............................................................... 12 000Allotment (3000 × $2) ................................................................. 6 000Ordinary Share Capital ...................................................... 18 000(To record issue of 3000 shares)25 June Cash .......................................................................................... 12 000Cash (Trust Account) ......................................................... 12 000(Transfer application money to bank account)BRIEF EXERCISE 14-6Land (5000 × $8) .......................................................................................... 40 000 Ordinary share capital (5000 × $8) ...................................................... 40 000 BRIEF EXERCISE 14-71 May Ordinary Share Capital (500 × $9) .............................................. 4 500Cash ................................................................................. 4 500 Record buy-back of sharesBRIEF EXERCISE 14-8Cash (5000 × $60) ........................................................................................ 300 000 Preference Share Capital (5000 × $60) ............................................... 300 000 BRIEF EXERCISE 14-9INGHAM LTDStatement of Financial Position (partial)as at 30 JuneShareholders’ equityShare capitalShares5000 Ordinary shares, fully paid ..................................................... $ 50 0003000 Preference shares, fully paid .................................................. 300 000 Total share capital ................................................................. 350 000 Retained earnings ...................................................................................................... 45 000 Total Shareholders’ equity .............................................................. $395 000 BRIEF EXERCISE 14-10Book value per share = $20.25 or ($810 000 ÷ 40 000).SOLUTIONS TO EXERCISESEXERCISE 14-1(a) 10 Jan Cash (70 000 × $10) .......................................................... 700 000Ordinary share capital(70 000 × $10)....................... 700 00010 June Cash (40 000 × $16) .......................................................... 640 000Ordinary share capital(40 000 × $16)....................... 640 000(b) Share Capital70 000 Ordinary Shares, fully paid ..................................... 700 00040 000 Ordinary Shares, fully paid ..................................... 640 000 1340 000EXERCISE 14-2(a)10 July Cash (Trust Account) (100 000 × $10) ..................... 1 000 000Application ...................................................... 1 000 00010 Aug Application (100 000 × $10) ..................................... 1 000 000Allotment (100 000 × $10) ........................................ 1 000 000Ordinary Share Capital .................................... 2 000 00010 Aug Cash ....................................................................... 1 000 000Cash (Trust Account) ...................................... 1 000 00030 Aug Cash ....................................................................... 1 000 000Allotment ......................................................... 1 000 00010 Sep Call (100 000 × $10)................................................. 1 000 000Ordinary Share Capital .................................... 1 000 00030 Sep Cash ....................................................................... 1 000 000Call ................................................................. 1 000 000(b)XYZ LIMITEDStatement of Financial Position (partial)as at 30 JuneShareholders’ equityShare capital100 000 ordinary shares, fully paid .................................................. $3 000 000 Total share capital ............................................................... 3 000 000 Retained earnings ......................................................................................... 70 000 Total shareholders’ equity.................................................... $3 070 0001 July Cash (Trust Account) (40 000 × $4) .......................... 160 000Application..................................................... 160 0001 Aug Application (40 000 × $4) ......................................... 160 000Allotment (40 000 × $4) ............................................ 160 000Ordinary Share Capital .................................. 320 0001 Aug Cash ...................................................................... 160 000Cash (Trust Account) .................................... 160 00015 Aug Cash ...................................................................... 160 000Allotment ....................................................... 160 00030 Aug Call (40 000 × $4) ..................................................... 160 000Ordinary Share Capital .................................. 160 00015 Sep Cash ...................................................................... 160 000Call ................................................................ 160 0001 Jan Cash ...................................................................... 1 000 000Preference Share Capital .............................. 1 000 0001 March Land ...................................................................... 140 000Ordinary Share Capital .................................. 140 0001 June Ordinary Share Capital (5000 x $10) ........................ 50 000Cash.............................................................. 50 000 (b)A. LIMITEDStatement of Financial Position (partial)as at 30 JuneShareholders’ e quityShare capital45 000 ordinary shares, fully paid .......................................................... $ 570 00040 000 preference shares, fully paid ...................................................... 1 000 000Total share capital ...................................................................... 1 570 000 Retained earnings ............................................................................................. 45 000 Total shareholders’ equity .......................................................... $1 615 00015 May Call (10 000 × $4) .............................................................. 40 000Ordinary Share Capital ........................................... 40 00030 May Cash (8000 × $4) ............................................................... 32 000Call ......................................................................... 32 00030 May Ordinary Share Capital (2000 × ($8 + $8 +$4)) .................. 40 000Call (2000 × $4) ...................................................... 8 000Forfeited Shares Account (2000 × ($8 + $8) ........... 32 00010 June Cash (2000 × $16) ............................................................. 32 000Forfeited Shares Account (2000 × $4) ............................... 8 000Ordinary Share Capital (2000 × $20) ...................... 40 000 (b)Forfeited Shares AccountNo. 612 Date Explanation Ref. Debit Credit Balance30 May 32 000 32 000 10 June 8 000 24 000EXERCISE 14-52 March Equipment .................................................................................. 60 000Ordinary Share Capital (5000 × $12) ................................. 60 000 12 June Cash .......................................................................................... 750 000Ordinary Share Capital (60 000 × $12.50) ......................... 750 000 11 July Cash (1000 × $55) ...................................................................... 55 000Preference Share Capital (1000 × $55) ............................. 55 000 28 Nov. Ordinary Share Capital (2000 × $10) .......................................... 20 000Cash ............................................................................ 20 000EXERCISE 14-6(1) Land ................................................................................................... 110 000Ordinary Share Capital ............................................................... 110 000 (2) Land (20 000 × $11) ............................................................................ 220 000Ordinary Share Capital (20 000 × $11) ....................................... 220 000(a) Mar. 1 Ordinary Share Capital (25 000 × $8.50) ......................... 212 500Cash....................................................................... 212 500 (b)SMALL LTDStatement of Financial Position (partial)as at 1 May 2010Shareholders’ equityShare Capital75 000 ordinary shares, fully paid ............................................................ 37 500Retained earnings ............................................................................................. 125 000 Total Shareholders’ equity .............................................................. 162 500 EXERCISE 14-8(a) 1 Feb. Cash (20 000 × $51) ..................................................... 1 020 000Preference Share Capital .................................... 1 020 000(20 000 × $51)1 June Cash (10 000 × $57) ..................................................... 570 000Preference Share Capital .................................... 570 000(10 000 × $57)(b)Preference Share CapitalDate Explanation Ref. Debit Credit BalanceFeb. 1 June 1 1 020 000570 0001 020 0001 590 000(c) Preference Share Capital — listed under Share Capital in the shareholders’ equity section ofthe balance sheet.EXERCISE 14-9CORAL LTDPartial Statement of Financial Positionas at 30 June 2010Shareholders’ equityShare capital100 000 Ordinary shares, fully paid........................................................ 1 500 00030 000 Ordinary shares, partly paid ....................................................... 280 00050 000 Preference shares, 8% dividend, fully paid ................................. 500 000Total share capital ......................................................... 2 280 000 Retained earnings ........................................................................... 1 134 000 T otal shareholders’ equity............................................. $3 414 000MEMOTo: CEO __________________________From: Your name , Chief AccountantRe: Questions about Shareholders’ Equity SectionYour memorandum about the shareholders’ equity section was received this morning. I hope the following will answer your questions.(a) 600 000 ordinary shares have been issued.(b) The issue price is $4 per share. (Ordinary shares issued $2 400 000 ÷ 600 000 shares.)(c) The issue price of the preference shares is $100 per share. (Preference share $1 200 000 ÷12 000 shares.)(d) The dividend rate is 5% or ($60 000 ÷ $1 200 000).(e) The Retained Earnings balance is still $3 716 000. Cumulative dividends in arrears are onlydisclosed in the notes to the financial statements.If I can be of further help, please contact me.COMMUNICATIONS LTDStatement of Financial Position (partial)Shareholde rs’ equityShare capital60 000 ordinary shares, fully paid1 ................................................ $ 925 00015 000 preference shares, fully paid ............................................. 300 000Total share capital ............................................................... 1 225 000 Retained earnings .................................................................................. 120 000 Total shareholders’ equity ............................................................. $1 345 0001 Ordinary share capital made up as follows:30 000 issued at $15 per share $450 00020 000 issued at $16 per share 320 00010 000 issued at $15.50 per share 155 000$925 000EXERCISE 14-12Total shareholders’ equity................................................................................. $2 500 000 Ordinary shares issued ..................................................................................... ÷ 125 000 Book value per share ........................................................................................ $ 20 EXERCISE 14-13Total shareholders’ equity (after deducting preference share capital) ................ $300 000 Ordinary shares issued ..................................................................................... ÷ 100 000 Book value per ordinary share .......................................................................... $ 3SOLUTIONS TO PROBLEMSPROBLEM 14-1(a) Jan. 10 Cash (100 000 × $6) ........................................................ 600 000Ordinary Share Capital (100 000 × $6) ..................... 600 000 Mar. 1 Cash (10 000 × $55) ........................................................ 550 000Preference Share Capital (10 000 × $55) ................. 550 000 Apr. 1 Land ................................................................................ 180 000Ordinary Share Capital (25 000 × $7.20) .................. 180 000 May 1 Cash (75 000 × $8) .......................................................... 600 000Ordinary Share Capital (75 000 × $8) ....................... 600 000 Aug. 1 Equipment ....................................................................... 100 000Ordinary Share Capital (10 000 × $10) ..................... 100 000 Sept. 1 Cash (5000 × $12)........................................................... 60 000Ordinary Share Capital (5000 × $12) ........................ 60 000 Nov. 1 Cash (2000 × $58)........................................................... 116 000Preference Share Capital (2000 × $58) .................... 116 000 (b)Preference Share CapitalDate Explanation Ref. Debit Credit BalanceMar. 1 Nov. 1 J1J1550 000116 000550 000666 000Ordinary Share CapitalDate Explanation Ref. Debit Credit BalanceJan. 10 Apr. 1 May 1 Aug. 1 Sept. 1 J1J1J1J1J1600 000180 000600 000100 00060 000600 000780 001380 0001 480 0001 540 000(c) HOUMBLE LTDStatement of Financial Position (partial)as at 31 Dec 2010Shareholders’ equ ityShare capital215 000 ordinary shares, fully paid ............................................. $ 1 540 00012 000 preference shares, fully paid ........................................... 666 000Total share capital ............................................................. $2 206 000。

Hedge accounting

Hedge accountingBy Graham HoltStudying this technical article and answering the related questions can count towards your verifiable CPD if you are following the unit route to CPD and the content is relevant to your learning and development needs. One hour of learning equates to one hour of CPD. We'd suggest that you use this as a guide when allocating yourself CPD units.The IASB has recently released an exposure draft (ED) Hedge Accounting, with proposals to make substantial changes to hedge accounting under International Financial Reporting Standards (IFRS). The ED is the third phase of the IASB's project to replace IAS 39, Financial Instruments: Recognition and Measurement.A difficulty with IAS 39 is the lack of a recognisable set of principles in the hedge accounting requirements. Hedge accounting is not compulsory under IAS 39 and the lack of a principle, together with conflicting rules, is the main issue relating to the hedge accounting requirements under IAS 39.The current accounting rules raise recurring difficulties for preparers of financial statements, which prevent them from appropriately reflecting in their financial statements the economic effects of hedging transactions.Some financial instruments used for risk management purposes are currently creating volatility in profit or loss, whereas they do constitute an effective economic hedge of a specific risk exposure.Non-GAAP measures or detailed disclosures on the impact on profit or loss of some economic hedges not eligible for hedge accounting are the only alternatives found by some entities to reflect their actual hedging results.The current IAS 39 hedge accounting rules do not allow the economic offset of significant hedging activities to be reflected in the financial statements for both financial and non-financial entities.Confusion reignsIn this respect, IAS 39 hedging rules create confusion and misunderstanding for users of financial statements. Entities manage their risks, but find that they are unable to fully reflect this in their financial statements.Additionally information relating to an entity's risk management strategy and practices may not be clearly reflected in the financial statements because of a mismatch between the application of hedge accounting and the entity's risk management objectives.The IAS 39 rules often prevent entities hedging specific components of non-financial items. An example is where a logistics company wishes to hedge its exposure to movements in the priceof diesel fuel by entering into a forward contract for crude oil. Although oil is a key component of diesel, it is not considered an acceptable hedged item because, under the existing rules, an entity can hedge only the foreign currency risk or the price of diesel itself.Designating groups of hedged items is difficult under the current rules because several criteria need to be satisfied. For example, items may only be grouped together if they have similar risk characteristics and share the risk exposure being hedged, which means that many hedged items cannot be designated as a group even if they have an apparent economic link. Hedge accounting cannot, therefore, be used for the hedge of the equities that comprise an index (such as those making up the FTSE 100) using an index future.IAS 39 has been criticized for its onerous requirements to perform effectiveness tests because of insufficient guidance on how to quantify hedge effectiveness. Hedge accounting cannot be dispensed with as the IASB has retained a mixed measurement approach. Both amortised cost and fair value are used in IFRS 9, and it is advantageous to entities to use hedge accounting to address measurement mismatches – for example, where an investment property is valued at fair value but the related debt is valued using amortised cost. The fair value option does not eliminate the complexities, but it simplifies the accounting related to fair value hedges of financial instruments.Hedge accounting is also needed for hedges of forecast cashflows that are not yet recognised in the financial statements. Many believe that the distinction in IAS 39 between cashflow hedges and fair value hedges adds complexity and is confusing.Risk managementThe ED proposes requirements designed to enable companies to better reflect their risk management activities in their financial statements, and, in turn, help investors to understand the effect of those activities on future cashflows. The proposed model is principles-based, and is designed to align hedge accounting more closely with risk management activities undertaken by companies when hedging their financial and non-financial risk exposures.The proposed model combines a management view that aims to use information produced internally for risk management and an accounting view that seeks to address the risk management issue of the timing of recognition of gains and losses.The ED proposes relaxing the requirements for hedge effectiveness and, consequently, the eligibility for hedge accounting. Under IAS 39, the hedge must both be expected to be highly effective, and demonstrated to have been highly effective, with 'highly effective'; defined by means of a quantitative test of between 80% and 125% effectiveness.The ED requires the hedge to be designated so as to be neutral and unbiased, and in a way that minimises expected ineffectiveness. This may be demonstrated qualitatively or quantitatively, depending on the complexity of the hedge. A simple hedge may require a qualitative test, whereas a complex hedge may require a quantitative analysis.Hedge ineffectiveness must still be measured and reported in the profit or loss. Effectiveness testing is conducted by reference to the entity's risk management objective, relies on a judgmental test and is only conducted prospectively, reducing the accounting burden for hedge relationships.The proposals remove restrictions that prevent some economically rational hedging strategies from qualifying for hedge accounting. The ED proposes that risk components can be designated for non-financial hedged items, provided the risk component is separately identifiable and measurable – for example, operating lease rentals linked to inflation.More instruments and 'economic' hedges will qualify for hedge accounting so long as the appropriate criteria are met. Entities that hedge non-financial items for a commodity price risk that is only a component of the overall price risk of the item may find that it is likely to result in more items qualifying for hedge accounting.In addition, the ED makes the hedging of groups of items more flexible, although it does not cover macro hedging. Entities often group similar risk exposures and hedge only the net position. An example would be the netting off of forecast purchases and sales of foreign currency. Under IAS 39, the net position cannot be designated as the hedged item. This will be permitted under the ED if it is consistent with an entity's risk management strategy. However, if the hedged net positions consist of forecasted transactions, all hedged transactions have to relate to the same period. The ED would permit changes in hedge relationships without undermining the original hedge relationship or hedge accounting.Under the current hedging rules, the time value of purchased options is recognised on a mark-to-market basis in profit or loss, which can create significant volatility. The ED proposes specific accounting requirements for the time value of an option when an entity separates the intrinsic value and time value of an option contract and designates as the hedging instrument only the change in the intrinsic value. Any changes in the option's fair value associated with time value will be recognised in 'other comprehensive income' (OCI). This should result in less volatility in profit or loss for these types of hedges and may make options more attractive as hedging instruments.The ED changes the presentation of fair value hedge accounting. The hedged item is not adjusted for changes in the fair value attributable to the hedged risk. The fair value changes will be presented as a separate line item in the statement of financial position. The fair value changes of the hedging instrument will be presented in OCI on a gross basis. Any ineffectiveness is reported in profit or loss.Hedge and riskConcerns have been raised over the linkage between hedge accounting and risk management regarding how this will work in practice. The ED includes certain rules that could preclude hedge accounting that reflects actual risk management activity. The ED has been written on the assumption that risk management activities are undertaken at a micro level and that risk management policies can forecast every eventuality. While financial institutions may make transactional decisions at a micro level, risk management is usually applied at a higher, macro or portfolio level. It is common for daily changes to the profile of hedging transactions to occur as the underlying hedged portfolio changes, without any amendment to risk management strategy. There are also some concerns that the separate transfer of hedging ineffectiveness from OCI to profit or loss will present some operational challenges.It is thought that entities may have valid risk management activities in place that might not be represented under the proposed hedge accounting model, either because the economichedging relationship does not meet the qualifying criteria for the application of hedge accounting or because the strategy is neither strictly a fair value hedge nor a cashflow hedge.The proposals introduce new concepts and definitions that may not be well understood and which could create uncertainty around the operation of the model. Given the importance of macro hedging, many also believe that the IASB should not finalise a standard on the general hedge accounting model before developing a model for macro hedging.The IASB needs to consider the various phases of the IAS 39 replacement as a whole before finalising the resulting standards, because the piecemeal approach being adopted could result in inconsistencies and difficulty of operation.Graham Holt is an examiner for ACCA and executive head of the accounting and finance division at Manchester Metropolitan University Business School.。

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HEDGE ACCOUNTING (Part 1)
ACCA P2 考试：HEDGE ACCOUNTING (Part 1)
The article explains the basic principles of hedging and the current accounting regulations as set out in IAS 39, Financial Instruments: Recognition and Measurement(IAS 39). The article concludes by considering the weaknesses of IAS 39 and how those weaknesses are addressed by the proposed changes issued by the IASB in September 2012.
BASIC PRINCIPLES OF HEDGING
Are you risk adverse? I think I am. For example, as a property owner I have an insurance policy to protect me from the risk of incurring a loss if my house were to burn down. Companies will face many risks and if they seek to cover these risks then they are said to be hedging. Hedging therefore is a risk management process whereby risk adverse companies firstly identify and quantify that they have a risk and secondly seek to cover that risk.
THE HEDGED ITEM
Risks come in many forms for companies. For example there is a risk that the fair value of assets and liabilities that they hold might increase or decrease, that in future the price of the goods they buy or sell might change, that interest rates on their borrowings or deposits might change, and that foreign exchange rates may move. A hedged item is defined as an item that exposes the entity to risk of changes in fair value or future cash flows and is designated as being hedged.
THE HEDGING INSTRUMENT
In order to protect themselves from losses on hedged items companies enter into contracts to cover any loss arising. These contracts often not only eliminate the risk but also eliminate any potential gain. These contracts are termed the hedging instrument. A hedging instrument is defined as a contract whose fair value or cash flows are expected to offset changes in the fair value or cash flows of a designated hedged item. Hedging instruments are normally a type of financial instrument known as a derivative.
I have written about the accounting for financial instruments (see 'Related links'). To recap, a financial instrument is a contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity. A derivative is so called because its value changes in response to the change in an underlying variable such as an interest rate, a commodity, a security price, or an index. Derivatives often require no initial investment, or one that is smaller than would be required for a contract with similar response to changes in market factors; and are settled at a future date.
An example of a derivative is a forward contract. Forward contracts are contracts to purchase or sell a specific quantity of something, eg a commodity, or a foreign currency at a specified price determined at the outset, with delivery or settlement at a specified future date. For example a farmer may enter into a forward contract with a supermarket to sell in 12 months a specific amount of crop at a certain price. In this way the producer (the farmer) is
protected from the risk of falling prices, and the consumer (the supermarket) is protected from the risk of rising prices. It therefore provides certainty.
Another example of a derivative is a futures contract. These contracts are similar to forwards but whereas forward contracts are individually tailored, futures are generic and are tradable in a market. Futures are generally settled through an offsetting (reversing) trade, whereas forwards are generally settled by the actual delivery of the underlying item or cash settlement.
If a derivative is held by a company and it is not designated as a hedging instrument then it is deemed to be held for speculation, ie for trading purposes. All derivatives must be recognised at fair value on the statement of financial of position - this is sometimes referred as being 'marked to market'. As the value of derivatives can be very unstable and so can generate large gains and losses in a short period, derivatives cannot be carried at historic cost (which is often nil anyway) as this would result in large gains and losses being unreported. If the derivative is not designated as a hedging instrument then any gains or losses arising are recognised in the statement of profit of loss. This is fair enough as the rightful place for trading profits and losses is the statement of profit or loss.。